DBS Group Research analysts Derek Tan and Rachel Tan believe it’s a good time to buy Singapore property stocks, given attractive valuations that are “too good to ignore”.
Their recommendation comes nearly a month after the government announced a fresh set of property cooling measures effective Dec 16, 2021.
See: Fresh set of property cooling measures with immediate effect
Among others, the additional buyer’s stamp duty (ABSD) for the second residential property bought by Singapore citizens, has been raised to 17% from 12%. For the third and subsequent properties bought by Singaporeans, it is now 25%, up from 15%.
Permanent residents buying their first property will continue to pay 5% ABSD. For their second purchase, the rate will now be 25%, up from 15%; for their third and subsequent properties, they now have to pay an ABSD of 30%, double the previous rate of 15%.
As for foreign buyers, anything they buy will attract an ABSD of 30%, up from 20% previously.
The way Derek and Rachel see it, the measures will likely result in a downtrend in the property market in the coming years, as investment demand gets suppressed by higher acquisition costs while a ramp up in housing supply turns developers cautious on landbanking.
In particular, the analysts are bearish on the enbloc market. “While the enbloc market had recently stirred to life, we believe that interest going forward may be limited given the more lengthy process to closure coupled with higher ABSD that developers may incur if units are unsold upon temporary occupation permit,” they opine in a Jan 5 research note.
“As such, after a stellar year in 2021, we expect to see a moderation in transaction velocity of primary sales by c.40% y-o-y to c.8,000-8,500 units in 2022. The property price index is also expected to slow to 0% to 3% in 2022 after a robust 8% rise in 2021, with a downside bias if the market weakens further,” the analysts add.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
Despite the damper outlook, the analysts also note that listed developers have largely been shielded from potential risks by strong pre-sales.
“Most listed developers we cover have pre-sold c.73% of their inventory (as of end 2021) with the likes of City Developments (CDL), UOL Group and Wing Tai Holdings achieving pre-sales of 80% to 95% of their inventories,” they remark.
To that end, Derek and Rachel believe even if weakness is observed in the market, the actual impact on developers “will be marginal at most”.
Instead, they note that listed developers are looking to pivot towards building a recurring income base of commercial and hospitality assets to ride the rebound and drive stronger cashflows and net asset values in 2022.
Taking into account the sector headwinds, Derek and Rachel see value in accumulating property stocks, given valuations that they view as “too good to ignore”.
They point out that the FTSE ST Real Estate Holdings and Development Index (FSTREH) is currently trading at a P/NAV multiple of 0.55 times, which stands one standard deviation below its five-year mean.
“With most developers’ P/NAV multiples even below the trough levels seen in past cooling measures, we believe that most negatives are priced in and do not see further downside. As such, we advocate investors to buy on any price weakness,” they explain.
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The analysts preferred picks are CapitaLand Investment (CLI), CDL, and Ho Bee Land. DBS has “buy” ratings on the counters, with target prices of $4, $10.50 and $3.38 respectively.
As at 4.31pm, shares in CLI, CDL and Ho Bee Land were trading at $3.57, $6.83 and $2.79 respectively.
Photo: Samuel Isaac Chua/The Edge Singapore
