Citigroup is choosing S-REITS over developers as it can see no upside catalysts in Singapore’s property sector. It says it is maintaining its sell calls on Capitaland, City Developments, Keppel Land and Wing Tai.

Allgreen gets the only Buy for valuation reasons. Citi continues to prefer S-REITs, with Buys on Ascendas REIT, Mapletree Logistics Trust, Suntec REIT, CapitaMall Trust, Frasers Centrepoint Trust and Parkway Life REIT, says analysts Wendy Koh and Tan Chun Keong Tan in a sector report dated Nov 3.

With the mass market already at 2007 peak levels, and in some cases above, the market is divided in its views on the high-end segment, says Citi.

While more believe that the high-end segment will be the next to revert to previous peaks, Citi remains “sceptical about the mass market being able to drive high-end prices up and maintain our view that the segments will converge further.”

Citi says that the negative supply due to demolitions outstripping completions in the prime districts was a major factor for the unprecedented rental increases of over 40% in a year. Overall occupancy for all private properties rose to a record high of over 95% in 2007.

“On our estimates, over 13,000 units will be completed in the next 12-18 months, or 9,000-10,000 units on an annualised basis. Of these, over 50% will be in prime districts, reversing the trend of low supply in 2006 to 2008 and hence exerting further downward pressure on rentals and capping prices in the prime districts.”

Although job creation and the inflow of foreigners will rebound but it does not always translate into higher rentals and prices, as seen in past post-recession recoveries, says Citi.

Net inflow of foreigners is likely to be similar to mid-1990 levels, i.e. 30-50% of 2006-08 levels.

And Chinese buyers have yet to make a significant impact. “Chinese buyers have been fuelling the residential property market in Hong Kong, but they have yet to make an impact in Singapore. Although the number of Chinese buyers is at a record high, they still account for only 2.3% of all transactions in Singapore’s prime districts,” explains Citi.

However, the biggest positive factors today are liquidity and record-low mortgage rates, says Citi. With mortgage rates at below 2% and unlikely to rise significantly, this would help mitigate any significant downward price pressures.

“Listed developers have already underperformed the broader market. In anticipation of lower volumes in the coming quarters and with no price spikes in sight, we see few upside catalysts for developers,” says Citi.

“We thus maintain our Sells on Capitaland, CityDev, Keppel Land and Wing Tai. Allgreen is the only Buy in this space for valuation reasons. We continue to prefer S-REITs, with Buys on A-REIT, MLT, Suntec REIT, CMT, FCT and PLife.”

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