Optimism returns to property sector
Windfalls from collective sales for developers, property-related stocks also performing strongly
Singapore's tepid property market might be showing signs of life, judging by the recent flurry of activity among real estate developers.
Last month, a 99-year lease residential site at Stirling Road was sold for a record $1 billion to a Chinese consortium, following an aggressive contest which drew 13 bids.
This month, owners of three private estates - Eunosville, Rio Casa at Hougang, and mixed-use development Goh & Goh Building at Upper Bukit Timah - received news of a windfall, when their properties went en-bloc.
This brings the number of collective sales this year to four, with year-to-date value of over $1.5 billion.
Yesterday, Serangoon Ville, a former HUDC estate, was put up for collective sale with an asking price of between $400 million and $430 million.
Property-related stocks on the Singapore Exchange (SGX) have also been showing a strong performance in the past year.
SGX lists 63 stocks under the Real Estate Management & Development GICS® Industry, with a combined market capitalisation of more than $112 billion.
Despite curbs introduced by the Chinese government last October to prevent a housing bubble, prices have continued rising, although at a slower rate.
These 63 stocks have a market capitalisation-weighted average total return of 23.1 per cent in the year-to-date, noted an SGX report last week.
Developers and property trusts make up half of the 10 best-performing stocks on the Straits Times Index (STI) in the past year, reported Bloomberg on Sunday.
The most recent property-related listing on SGX is World Class Global, a real estate company in property development and property investment in Australia and Malaysia.
The property arm of jeweller Aspial Corp saw "brisk demand" at the close of its public offer - its invitation shares were oversubscribed 2.1 times.
Recently, both DBS Vickers and OCBC analysts gave the property sector an overweight rating.
In a report on June 2, DBS analysts Rachel Tan and Derek Tan wrote that the recent winning bids suggest that developers are feeling "bullish". The bids also mean that they are expecting a rebound in property prices from 2018.
The analysts see City Developments and UOL as key beneficiaries to any price increase given their existing unsold stocks and potentially better margins for recently land-banked projects.
OCBC's top picks were Capitaland, Wing Tai and Wheelock Properties.
Their analyst Eli Lee wrote in a report on June 14: "An increase in collective sale transactions could bring forward the recovery in home prices as developers move quickly to replenish their land banks, which for many now lie at multi-year lows."
The optimism in the property market was sparked off in March when the Government government relaxed some curbs after a 3½-year slump in home prices - the longest stretch of declines since the data was first published in 1975.
In the same month, property transactions rose to the highest in nearly four years as developers sold more than twice the number of homes compared to 2016.
But investors should note that property prices and rents in Singapore are still on the decline.
According to Urban Redevelopment Authority statistics, private residential properties prices decreased by 0.4 per cent in the first quarter of this year, compared with the 0.5 per cent decline in the previous quarter.
Rentals of private residential properties fell 0.9 per cent, compared with the 1 per cent decline in the previous quarter.
Most of SGX's property firms, however, have exposure to overseas markets.
SGX lists 12 Real Estate Development and Management stocks with capitalisation at/or above $100 million that report at least one-tenth of their revenues to China (see story above right)
As a group, these stocks averaged a 13 per cent price gain in the year-to-date, taking their 12 month price gain to 24 per cent, according to an SGX report last week.
Despite curbs introduced by the Chinese government last October to prevent a housing bubble, prices have continued rising, although at a slower rate.
New home prices in China's 70 major cities rose 10.4 per cent last month compared to a year ago, slightly less than the 10.7 per cent gain in April, according to calculations from Reuters on Monday.
Month-on-month, prices rose 0.7 per cent last month, in line with April and remained the quickest gain since October.
Analysts note that investors are increasingly looking beyond top-tier Chinese cities where curbs are stricter, and driving up prices in more remote, smaller cities with fewer restrictions.
"Tightening is (a) top-down (effort) but on the ground, buyer sentiment is very strong, that's why it takes a bit longer to pull this market off (its peak)," Mr Alan Jin, Asia ex-Japan analyst at Mizuho Securities Asia, told CNBC.
Stocks with China exposure
CAPITALAND
This home-grown developer is the eighth biggest constituent of the STI and has rallied 20 per cent in the year so far. In the last financial year (FY), CapitaLand segmented 51 per cent of its revenue to China, up from 49 per cent in FY15 and 22 per cent in FY14.
CWG INTERNATIONAL
The international real estate group was the best performer over the past 12 months with a 79 per cent gain.
The firm noted in its first quarter financial report that eight more projects are slated for launch in Chinese cities - six in Suzhou, one in Xuancheng and one in Wuhan - and it is confident of achieving its 10 billion yuan (S$2 billion) pre-sales receipts target for FY17.
YANLORD LAND
The China-based firm was the best year-to-date performer, with a 41 per cent gain so far. The firm joined the STI Reserve List on Monday.
The company focuses on the high-end residential, commercial and integrated property segments of the market which are situated in high-growth locations, with a presence in many key cities such as Shanghai, Suzhou, Shenzhen and Chengdu.
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