Thanks to the nearing peak of incoming supply.
According to DBS, after a stellar performance in 2012, it remains neutral on property developers on the basis of valuation. The sector is trading at a 21% discount to RNAV vs the average of 18%.
As the sector moves closer to the start of the large incoming supply from this year onwards, it believes the market would focus on the impending supply, occupancy and rental yields and the impact on residential prices. In this regard, it expects home prices to decline between 0-5%.
Here’s more from DBS:
The upcoming release of key policy papers on population and land use this year could be a longer term indicator on population targets, however, we see this as a medium term catalyst, given the current bottlenecks in the housing and infrastructure sectors.
For 2013, we remain neutral on developers on the basis of valuations, after the sharp run up in stock prices. We believe the market would continue to focus on incoming supply. As we move a step closer to the peak of incoming supply, we expect private residential prices to decline by 0-5% while volume demand should remain relatively robust at about 20,000 units.
The government is expected to release policy review papers on population, infrastructure and land use (Concept Plan and Master Plan) this year. This may provide some indicators to population targets for the medium to longer term.
While we expect this to provide some catalyst for the sector, we see this as medium-term in nature, as we believe any acceleration in migration is likely to happen when the current infrastructure and housing bottlenecks are alleviated.
In the near term, the market is likely to continue to focus on the prospect of rising inventory and the impact on occupancy and rental yield levels. That said, we think that RNAVs for property companies are likely to remain relatively flat, given the expected modest decline in home prices and stable office capital values.
As such we expect investors to focus on other catalysts such as asset value unlocking as a driver for share prices.
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