RHB Bank Singapore analyst Vijay Natarajan has upgraded the real estate sector to “overweight” from “neutral” as the residential market looks set to make a comeback in 2025 following a “sharp pick-up” in buying interest seen in new launches in 4Q2024.
During the quarter alone, some 3,500 new homes were sold, which was more than the combined units sold in 9M2024. According to Natarajan, this implies a change in buyer sentiment on the back of easing mortgage costs, healthy labour market and wage growth, as well as pent-up demand from the lack of new launches.
The analyst also sees momentum for new home sales to continue into 2025 with a slew of attractive launches and strong GDP growth. This year, the analyst sees primary volumes of 9,000 to 10,000 units – 30% to 50% higher y-o-y – due to lower mortgage rates, resilient household balance sheets and a new launch supply of over 13,000 units.
“Based on PropNex Research’s estimates as of November 2024, a total of 14,694 units from 34 projects are set to be launched this year, while EdgeProp estimates [around] 13,500 units from 32 new launches,” says Natarajan, adding that developers sold a total of just 6,560 units in 2024, 2% higher y-o-y.
The way the analyst sees it, the “healthy interest” in new projects is likely to spill over to the secondary market segment as there is a significant price difference of between 30% to 50%. Private resale transaction volumes are also expected to increase by 10% to 15%, he adds.
That said, demand is expected to remain selective, price-sensitive and skewed towards the mass market and mid-tier segments.
In 2025, the analyst also sees residential prices to continue moderating by 1% to 4% as developers’ pricing power is likely to be limited by factors such as a higher supply of homes in the market, price-sensitive demand and additional buyer’s stamp duty (ABSD) deadlines.
“This is especially noticeable in the high-end segment, where the developer of One Bernam recently dangled discounts of 15% - 27%, resulting in a near sell-out of remaining units. Based on Urban Redevelopment Authority (URA) flash estimates, the private residential index rose 3.9% in 2024 (2023: 6.8% and 2022: 8.6%),” Natarajan writes.
Amid a ramp-up in land supply via government land sales (GLS) programmes over the past three years, developers are also expected to remain “selective and measured” in the bids. This is as development margins remain thin at 5% to 15% while cost pressures continue to rise.
See also: Brokers’ Digest: SGX, UOB, Marco Polo Marine, Pan-United Corp, Food Empire, PLife REIT, Wilmar
In 1H2025, GLS were raised to 8,505 units from 8,140 units in 2H2024. Of the 8,505 units, 5,030 units are in the confirmed list. To cater to rising demand for executive condominiums (ECs), there will be three EC sites on the confirmed list, yielding 980 units or 75% higher h-o-h.
All of these factors, in Natarajan’s view, could lead to a more “stable and sustained property market recovery in 2025”.
Despite the upgrade, the analyst is also mindful of key risks such as stringent cooling measures targeting the private property market. These measures can come in the form of higher ABSD rates and lower loan-to-value (LTV) ratios, he points out.
The analyst also adds that the government may impose targeted measures to tackle rising market prices for resale Housing & Development Board (HDB) flats. Other potential measures include higher sellers’ stamp duty (SSD) and a longer holding period, currently at three years, to curb speculative purchases and overheating should prices continue to rise at a faster pace of more than 3% per quarter.
Within the property sector, Natarajan has “buy” calls on both City Developments Limited (CDL) and APAC Realty , his top picks. The analyst has given CDL a target price of $7.30 and APAC Realty a target price of 42 cents.
To him, property agencies are the “best proxy” to the sector while developers are likely to see share price support from the positive news flow.
APAC Realty is expected to see strong earnings recovery in 2025 with a 50% y-o-y increase in net profits from a surge in residential transaction volumes.
For more stories about where money flows, click here for Capital Section
“Valuation is reasonably cheap at 11 times FY2025 P/E with a healthy 7% forward dividend yield and net cash position presenting limited downside risks,” says Natarajan of APAC Realty.
On the other hand, CDL currently has one of the largest residential landbanks in Singapore. The developer has also seen strong take-up rates for its new launches.
“Based on our estimates, CDL currently has unbilled residential sales in excess of $4 billion. However, a key concern is its growing debt and financing cost pressures, which are weighing on its bottomline,” says Natarajan.
“A potential significant divestment of assets as guided by management ([over] $1 billion) in the near term could alleviate debt concerns and act as a share price catalyst,” he adds. “CDL is trading near historic lows and below the -2 standard deviation (s.d.) levels of P/BV and P/RNAV.”
As at 4pm, shares in APAC Realty are trading at 42 cents, 1.5 cents or 3.7% higher while CDL shares are trading at $5.10, 5 cents or 0.99% up.
