Yahoo Finance Valuations for property developers remain attractive despite slow home sales in June
Despite the property sales slump in June, analysts are still seeing the value in the real estate industry.
Singapore home sales in June saw a dip amid a lack of new property launches and rising interest rates.
According to data from the Urban Redevelopment Authority (URA), monthly home sales for June came in at 496 units. Excluding executive condos (ECs), private home sales amounted to 488 units (-64% m-o-m, -44% y-o-y).
This is the lowest number of sales since May 2020, during the circuit breaker period, when developers sold 487 units.
“We believe the slower sales were due to absence of major new launches during the month, even as volume sales continue to outpace the number of new units launched in June,” says CGS-CIMB Research analyst Lock Mun Yee, who has kept an “overweight” rating on the Singapore property development and investment sector.
According to Christine Sun, senior vice president of research and analytics at OrangeTee & Tie, this decline could also be attributed to buyers holding back due to rising interest rates and global economic uncertainties. The June school holiday period could also be a contributing factor to the low sales.
"Given the recent interest rate hikes, some buyers may have taken a temporary backseat to reassess their budgets or housing affordability… Others may be waiting for more project launches over the next few months, especially since new projects will be launched in the suburban areas where new home supply is most lacking,” says Sun.
Transactions in the Core Central Region (CCR) accounted for the 42% of sales in June, with the more popular projects being Haus on Handy, Hyll on Holland, Irwell Hill Residences and Leedon Green.
Meanwhile, projects in the Rest of Central Region (RCR) made up another 35% of sales. Take-up at suburban projects lagged in June, with 23% market share. With the latest data, sales (excluding ECs) for the first 6 months of 2022 totalled 4,384 units, a decline of 33.6% y-o-y.
According to Singapore Real Estate Exchange (SRX) data, private home resale volumes also declined 17.2% m-o-m in Jun (-17% yoy) while HDB resale volume fell by a smaller 0.8% m-o-m and 7.4% lower y-o-y in the same month.
“We anticipate volume sales in July to improve with the launch of the 372-unit AMO Residences towards end of the month. We maintain our primary home sales volume projection at 10,000 units for 2022, or close to 2020’s level,” says Lock.
Based on URA data, the flash estimate for residential property price index posted a 3.2% q-o-q increase in 2Q2022, on the back of a recovery in CCR and RCR prices. SRX reported that private resale home prices inched up by 0.8% m-o-m in June, while HDB resale prices rose 1.2% m-o-m over the same period, bringing YTD improvements to 3.9% and 5.4%, respectively.
“We maintain our expectation for private home prices to rise 0-5% in 2022, broadly in tandem with our projection of Singapore’s GDP growth,” says Lock.
The way Sun sees it, Singapore’s property market is expected to remain strong. “Amidst global headwinds, Singapore's robust economic growth and consistently high employment rate may help cushion homeowners from the impact of the global economic uncertainties,” she says.
Moreover, investors flocking to traditional save havens to preserve their capital may still park their money in Singapore, as its property investment market is considered one of the safest and most stable in the world. “We estimate that prices of new homes excluding ECs may rise 6-8% this year while sales volume may be around 8,000 to 9,000 units. For the resale market, prices may increase by 6-8%, and about 11,000 to 13,000 homes could be sold,” says Sun.
As for HDBs, Sun views that interest rate hikes may not have as large of an effect, as compared to purchasing private home. And as HDB continues to launch more Build-to-Order (BTO) flats in the second half of this year, the increased housing supply will continue to draw demand away from the resale market, which may help to regulate the pace of price growth and tame market exuberance. “We anticipate that 25,000 to 28,000 resale flats may be transacted this year. Resale prices may grow by 7-9% for the entire year,” says Sun.
Investing strategy
For Lock, developers’ valuations still look inexpensive, as they are trading at a 42% discount to RNAV, close to 1 standard deviation below the long-term mean discount. “We prefer developers with visible residential pipelines and strong balance sheets that would enable them to tap into any opportunity during this slower cycle,” says Lock, while pointing out UOL Group and Capitaland Investment as her preferred picks.
Lock has “add” calls on UOL and Capitaland with target prices of $8.00 and $4.59, respectively.
For Capitaland, she likes that the stock is one of the largest real estate investment managers in Asia. She believes that growth in its funds under management and fee income, its efficient capital deployment, and the improved operating performance of its investment and lodging properties would likely underpin its ROE expansion and share price re-rating. The stock is trading at a 26% discount to RNAV.
She likes UOL as it has a high recurring income base, supported by rentals, hotel operations and investment holdings. It also has good office exposure through Singapore Land Group. The stock is now trading at a 46% discount to RNAV.
OCBC Investment Research too has set its eyes on UOL Group as it keeps its “buy” call and $8.56 fair value estimate on the stock. The OCBC Investment research team believes that with household balance sheets in Singapore still seen as healthy, as household net wealth grew even amid the pandemic, UOL’s upcoming project launches will still be able to see decent demand.
Meanwhile, with ESG on the group’s mind, OCBC Investment Research team expects UOL to step up its ESG initiatives. The group has already highlighted in its FY2021 annual report that it is developing a three-year sustainability roadmap with an external consultant to step up on its decarbonisation efforts. It is also targeting the adoption of the Task Force on Climate- Related Financial Disclosures (TCFD) in the next two years, and is committed to greening its buildings as part of the Singapore Green Plan 2030.
As at 4.00pm, shares in Capitaland Investment and UOL traded at $3.93 and $7.45, respectively.
See Also:
Click here to stay updated with the Latest Business & Investment News in Singapore
FCT remains 'resilient', but borrowing costs starting to rise: analysts
'Buys' all around for Keppel REIT as demand is expected to stay strong moving forward
Get in-depth insights from our expert contributors, and dive into financial and economic trends
