Property investors who either do not wish to commit a huge amount of capital for down-payment on a property or who have no desire or inclination to do research on it can instead choose to invest in shares of property developers to indirectly own properties.
However, it pays to tread carefully when it comes to such investments as many property developers are extremely sensitive to government policies. The recent property cooling measures was a case in point – in July 2018, the government tightened rules for borrowing and also increased taxes on property transactions, which had the overall effect of cooling the property market.
I decided to scout around for property companies which had been battered by the measures last year and were thus trading at a steep discount to their book values. As a recap, property developers are usually valued based on their revalued net asset value (RNAV), or book value (BV), as their earnings tend to be erratic and lumpy.
Here are two property companies which are trading at very steep discounts to their book values.
1. Hong Fok Corporation Limited
Hong Fok Corporation Limited (SGX: H30) is engaged in property investment, property development and construction, and property management, among others. Some of Hong Fok’s properties include The Concourse at Beach Road, International Building at Orchard Road, and Jewel of Balmoral at Balmoral Park. The group also owns YOTEL Singapore Orchard Road.
Hong Fok is trading at just 0.33x P/BV (i.e. a 67% discount to book value) and pays a 1.5% dividend yield (final dividend of 1 Singapore cent and a special dividend of 0.3 Singapore cents) at the last closing price of S$0.87.
2. Wing Tai Holdings Limited
Wing Tai Holdings Limited (SGX: W05) is a leading property developer and lifestyle company which has been listed in Singapore since 1989. The group’s key focus is on growth markets in Asia, and it has assets exceeding S$4.5 billion. Wing Tai has core businesses in property investment and development, lifestyle retail and hospitality management in key Asian markets.
The group owns residential properties in Singapore, Malaysia, Hong Kong and China, as well as commercial property, retail and hospitality. The group was trading at 0.47x P/B and had a 3.9% dividend yield (3 Singapore cents final dividend and 5 Singapore cents special dividend) at the last closing price of S$2.08.
Be wary of value traps
Investors should note, however, that just because these developers are trading at a steep discount to book value, it does not automatically make them cheap bargains to be acquired at all costs. Proper due diligence still needs to be conducted to assess their prospects and plans for the future, as these also determine if the company may or may not turn out to be a value trap.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.
Motley Fool Singapore 2019