Following strong primary home sales in August, CGS-CIMB analyst Lock Mun Yee has maintained her “overweight” call on Singapore’s real estate market. The Urban Redevelopment Authority (URA) reported that primary home sales last month came in at 1,307 units -- 1,256 excluding executive condominiums (ECs) --with sales volume up 11.8% y-o-y and 16.3% m-o-m.  

URA also found that half of these sales originated from Rest of Central Region (RCR) projects, with the newly-launched Forrett at Bukit Timah comprising a third of all RCR sales and 17% of sales for the month. Suburban projects also recorded promising results, comprising another 40% of sales following promising results from projects like Treasure at Tampines, Parc Clematis and The Garden Residences. 

Over the past eight months, primary sales came in 6% lower y-o-y at 6,353 units and comprise 70%-79% of Lock’s 2020 transaction volume predictions of 8000-9000 units. But the Singapore Real Estate Exchange (SRX) also reported an improvement in the non-landed resale market, which saw 1,052 units sold in August 2020. This constitutes a 7% m-o-m rise and a 36% increase y-o-y -- the highest monthly volume achieved since August 2018. 

Yet, URA’s residential price index reported that private home prices in 1H20 were 0.6% lower than at end-2019. “Overall, we expect overall private home prices to moderate by 0% to -5% for 2020, despite the improved volumes, given the weak macro outlook,” comments Lock. With 42 new projects slated to be marketed in 2020, she sees the slower macro outlook and ample supply as indicative of competitive property prices in the near future as developers look to keep inventory moving. 

“Developers’ valuations are inexpensive, trading at 56% discount to RNAV, close to the -2 s.d. discount to long-term mean,” Lock adds. She advises investors to buy into developers with a high recurring cashflow and strong balance sheets, since this would allow them to capitalise on development opportunities within this slower demand cycle. Her picks for this sector include CapitaLand, City Developments (CDL) and UOL Group. 

CapitaLand’s strong capital recycling and deployment into new investments looks likely to drive return on equity, argues Lock, noting that it is currently trading at 56% of revalued net asset value (RNAV). As of 4pm, it is trading 0.03 points up at $2.75 with a price-to-earnings (P/E) ratio of 10.49 and 4.36% dividend yield. Lock has given a target price of $3.42 on the counter.

CDL is attractive too due to its land restocking activities and new oversea investments in Europe and China, which would extend its residential earnings visibility and allow it to deploy balance sheet capacity respectively. It is trading at 57% RNAV. As of 4pm, the counter is up 0.09 points at $8.05 with a P/E ratio of 38.95 and a 1.74% dividend yield. Lock has given CDL a target price of $10.10.

UOL moreover has a very attractive 45% RNAV, as well as a high recurring income base, supported by rentals, hotel operations and investment holdings. Moreover, it is well-exposed to offices via the United Industrial Corp. It is 0.09 points up at $6.79 with a P/E ratio of 44.45 and a 2.58% dividend yield. Its target price stands at $7.29.