SINGAPORE (Apr 3): OCBC Investment Research is maintaining “overweight” on Singapore’s residential sector with the view that valuations remain compelling for developers.

City Developments (CDL), UOL Group and CapitaLand have been named as the research house’s top buys with fair values of $15.91, $10.63 and $4.26, respectively.

This comes as the FTSE ST Real Estate Holding & Development Index (FSTREH) trades at a blended forward P/B ratio of 0.67 times, which comes in at 0.84 standard deviations below the 10-year average of 0.8 times.

In a Tuesday report, lead analyst Andy Wong notes how the Urban Redevelopment Authority’s (URA) latest flash estimates for 1Q18, released yesterday, represented the highest q-o-q growth since 2Q10 figures.

To recap, the private residential property price index is estimated to have grown 3.1% q-o-q compared to the 0.8% q-o-q increase registered in 4Q17.

See: Singapore's 1Q private home price growth fastest in nearly 8 years, backs recovery signs

As such, Wong is now expecting the full-year growth figure to come in at the upper-end of OCBC’s forecasts or even potentially exceeding it, driven largely by higher prices within the core central region (CCR).

“As a breakdown, prices of non-landed private residential properties jumped 5% q-o-q in CCR; prices in Outside Central Region (OCR) rose 3.8% while prices in the Rest of Central Region (RCR) increased by 1.1%. We believe the firm CCR price increase was driven largely by CDL’s New Futura and GuocoLand’s Martin Modern,” says Wong.

Highlighting how sales of CDL’s The Tapestry project sold well over the first weekend of its launch at an average selling price (ASP) of $1,310 psf, the analyst thinks upcoming launches, such as the second phase of Park Place Residences by Lendlease, are likely to generate keen interest.

See: CityDev says 315 units at The Tapestry sold over weekend launch

“One potential downside risk could come from further tightening measures introduced by the government if prices continue to gain traction strongly, but this may be mitigated by more supply from upcoming government land sales and re-launches from en-bloc projects,” he cautions.

As at 1:08pm, shares in CDL, UOL and CapitaLand are trading at $12.99, $8.55 and $3.57, respectively.