SINGAPORE (June 20): Maybank Kim Eng is remaining positive on Singapore’s property sector on expectations of the recent home-price rally to continue, with buying opportunities arising from the current share price weakness among developers.

In a Monday report, analyst Derrick Heng notes that speculative buying in Singapore’s property market is near its historical low, while existing measures continue to ensure financial prudence among property buyers.

He therefore sees no need for further policy tightening and believes housing demand remains strong in view of the healthy overall transaction volumes, including in the secondary market.

“While the housing market is recovering, we believe it is not overheating. Sub-sales are near their historical low, at just 1.5% of transactions. Intact cooling measures implemented after GFC should continue to keep prices and exuberance in check. Lastly, we believe gradual increases in interest rates are natural dampeners for the market,” comments the analyst.

Although 5M18 saw soft developer sales, Heng believes this is due to a lack of new launches, and is not a sign of market weakness.

As such, he maintains his new-home sales forecast of 12,000 units for the year and expects a stronger 2H18 to provide re-rating catalysts for developers going forward.

“Despite a 7% rebound in home prices YTD, developer stocks have shed 4%. With the demand-supply outlook still supportive of a housing recovery, we see this divergence as an opportunity to raise sector exposure,” says Heng, who forecasts an annual net supply of just 5,300 units for 2018-20E versus the market’s long-term average absorption of 11,400 units.

“Replacement demand from the 6,000+households displaced by en-bloc deals announced since 2017 will soak up a large part of this supply. Given this, we expect lower vacancy over the next few years,” he adds.

UOL Group remains the research house’s top “buy” pick among large caps and GuocoLand among the mid-caps, at target prices of $10.85 and $3, respectively.

Maybank also favours large cap developers City Developments (CDL) and CapitaLand, rated “buy” at the respective target prices of $14.20 and $4.10. In the small-cap space, Bukit Sembawang, Ho Bee Land and Oxley Holdings are also rated “buy” with target prices of $8.55, $3.30 and 56 cents, respectively.

Shares in UOL and GuocoLand were at $7.62 and $2.05 just before the midday trading break.

CDL, CapitaLand, Bukit Sembawang, Ho Bee and Oxley were at $11.36, $3.34, $5.99, $2.33 and 42 cents, respectively.