SINGAPORE (Dec 24): Analysts are remaining cautious on the Singapore property and real estate sector, as the city state’s property cooling measures keep the market lukewarm.

Both DBS Group Research and RHB Group Research are keeping their “neutral” ratings on the sector, as property prices remain relatively stagnant, despite resilient sales volumes.

“While developers have been calling for some relaxation in property cooling measures, we believe it is unlikely in the near term as prices remain on an uptrend,” says RHB analyst Vijay Natarajan in a Dec 19 report.

The way Natarajan sees it, any attempt by the government to lift the property cooling measures could also backfire ahead of the upcoming general election.

“Such a move is also likely to be unpopular… and could spike up prices amidst volatile market conditions in neighbouring countries,” he adds.

Meanwhile, DBS lead analyst Derek Tan notes that, despite the subdued sentiment, the Singapore property price index (PPI) is likely to register a 3.0% rise in 2019 amid a robust year of property launches.

“We are anticipating a dip in momentum come 2020 as the pipeline of new supply starts to taper off,” Tan says. “The PPI is expected to remain on an upward trend and is projected to rise by another 1-2% [in 2020].”

Amid the uncertainties, both RHB and DBS signal that they prefer property players with diversified exposure and strong recurring income growth.

For this reason, both brokerages have named CapitaLand as their top picks in the sector.

“CapitaLand is well poised to deliver superior returns across market cycles with a well-balanced asset portfolio throughout all asset classes/markets,” Natarajan says. “Capital allocation will be split equally between developed (30% for Singapore and 20% for other developed jurisdictions) and emerging (35% China, 10% India, and 5% Vietnam) markets – hence allowing CapitaLand to build on scale and balance with growth.”

RHB has a “buy” call on CapitaLand with a target price of $4.20.

At the same time, DBS’ Tan prefers diversified landlords, such as CapitaLand, which have been focusing on growing their recurring income base either through M&A or repositioning strategies.

“CapitaLand should deliver the strongest ROE among developers at close to 9.5-10.0%, which we believe will lift valuations higher,” Tan says.

DBS has a “buy” call on CapitaLand with a target price of $4.00.

Besides CapitaLand, RHB’s other top pick in the sector is Oxley Holdings, while DBS’ other top pick is City Developments (CDL).

RHB has a “buy” call on Oxley with a target price of 43 cents, while DBS has a “buy” recommendation on CDL with a target price of $11.00.

As at 1pm, shares in CapitaLand are trading 1 cent lower at $3.73, while shares in Oxley are trading flat at 35.5 cents and shares in CDL are trading flat at $10.96.