As authorities keep a close eye on the residential market after flash estimates for the Singapore property price index (PPI) in 4Q2020 point to a 2.1% y-o-y growth, Jefferies analyst Krishna Guha recommends investors accumulate shares in City Developments Limited (CDL) and Wing Tai Holdings.

Guha, in a Jan 18 report, rated both counters at “buy” with target prices of $11 and $2.40 respectively, due to their attractive valuation, diversified revenue sources and potential growth in net asset value (NAV) on the repositioning of assets and capital recycling.

Referring to the statement made by Deputy Prime Minister Heng Swee Keat on Jan 18, that the government does not want to see “the property market run ahead of the underlying economic fundamentals”, Guha says the comments may mean that the authorities are considering another round of cooling measures.

Should this happen, launches and volumes in sales may slow down in the near-term.

“However, as in prior rounds of cooling measures, we think the market is likely to respond to the supportive factors of low rates, ample deposits, the sustained wage growth of residents over the past decade, healthy capital market gains, pandemic-related relief measures, and expectations of a revival of the en bloc market,” he says.

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“We expect developers to sell 9-10K units in 2021, similar to last year, with a focus on selling down inventory. Index prices may grow 2-4%,” he adds.

Following the announcement of the topping out of CapitaSpring and the divestment of OUE Bayfront by OUE Commercial REIT, Guha noted that the pre-commits are positive for the office sector and that leasing activity is picking up again.

“However, we understand it is a relocation demand, with tenants shifting from elsewhere in Singapore. We await new-to-the-market tenants and expansions from existing tenants before becoming more positive,” he says.

“[The] divestment of OUE Bayfront was expected, according to an earlier release by OUECT. We view it as a deal to de-gear. The transacted prices are above last year's valuation of $2954 psf, but with rental support helps to de-gear by about 7 percentage points,” he adds.

Shares in CDL and Wing Tai closed $7.68 and $1.98 on Jan 21.