Business

S’pore property market tops Asean in forecasts

Morgan Stanley expects home prices here to rise 8% this year and in 2019

Singapore's property market looks the most promising among a ranking of Asean markets.

Morgan Stanley Research, which compiled the league table, is so bullish that it expects home prices here to rise 8 per cent this year and again in 2019, with demand outweighing a tight supply.

It also expects higher sales of new homes as a buoyant collective sale market drives up demand while reducing the supply of units to buy.

"As a result of a surge in (collective sale) activity, fewer units available for sale in the secondary markets will channel more buyers to the primary market, driving take-ups for newly launched projects," it said.

Morgan Stanley's top Singapore developer stock pick is City Developments (CDL), which it sees as the best proxy for the sector upturn. CDL also has the largest land bank among the developers that it covers.

Morgan Stanley also believes that CDL has not priced in the property market upcycle, as it still trades at a discount to revalued net asset value. It added that the developer also has the largest earnings exposure.

"We estimate that a 5 per cent rise in Singapore residential average selling prices lifts CDL's 2018 earnings per share (by) 11 per cent, compared with 1 per cent to 5 per cent for peers CapitaLand and UOL," it said.

The research house expects that CapitaLand's more intense pace of asset recycling will drive its share price to above book value.

CapitaLand has said that it is gunning for a return on equity of 8 per cent. Last week, it sold off 20 malls in China, mostly in Tier 3 cities, for 8.37 billion yuan (S$1.71 billion) as it continued to reshuffle its portfolio.

Morgan Stanley thinks UOL has been "astute" in timing its acquisitions and building up its land bank to the equivalent of three years of its historical rate of home sales in Singapore.

A possible catalyst for the stock could be further progress in simplifying its group structure, especially following the close of its offer for Singapore Land shares. It has gained statutory control over its 50 per cent-owned Singapore-listed unit, United Industrial Corp.

Or it could come from unlocking value from its large commercial portfolio through divestments and redevelopment projects, said Morgan Stanley, which covers only these three Singapore developers.

Analysts at Credit Suisse and OCBC Bank are also bullish.

Home prices may rise as much as 10 per cent this year, underpinned by collective sales, said Credit Suisse.

OCBC reckons home rental prices could climb between 5 per cent and 10 per cent this year.

As for the region, the Philippines stands out as the most attractive among the emerging Asean markets, given that the improving outlook in the residential and office segments does not look likely to be priced in yet, Morgan Stanley said. - THE STRAITS TIMES

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