SINGAPORE (April 4): Taking your chances on Singapore’s Straits Times Index (STI) could be a wiser investment decision than putting your capital in the local property market, says Tata Goeyardi of Religare Capital Markets.

The research house is maintaining its “overweight” view on property developers with its top pick being CapitaLand Limited. It also notes that underperformers such as Frasers Centrepoint Limited (FCL), GuocoLand, UOL and UIC are looking attractive on valuation as well.  

In a sales commentary issued by Religare Sales on Tuesday, Goeyardi notes that the price index of private homes in Singapore has fallen 0.5% q-o-q in the first quarter of this year alone, according to Urban Redevelopment Authority (URA) flash estimates – representing a similar pattern observed in 4Q16 and also marking the 14th consecutive quarter of the index’s fall.

“Overall prices have dropped by 11.7% from the peak in 3Q13 (see chart below), an average of ~4% drop pa for the past 3 years – a reasonably mild and orderly decline, in our view. Today’s price point is similar to peak of 1Q07 before the global financial crisis (GFC) happened,” says the analyst.

According to Goeyardi, this means that property owners who made their purchases in the first quarter of 2007 would have seen zero returns over the last 10 years if they were to hang on to their properties until today.

“If one was lucky enough to buy a house at the bottom of 2Q09, you essentially make 45% until now (~5.6% pa return), but could have made 62% (~16% pa) if you were to offload it during peak of 3Q13. If one bought a house in 1Q07 and sold at 2Q09, you would have lost 30% on your investment in 2+ years,” he illustrates.

“Based on this analysis alone, unless you timed the market so perfectly, investment in Singapore property is actually not that attractive.”

Conversely, Goeyardi says that those who invested in the stock market during the same time period would have seen better results instead, as buying the STI index in 1Q07 would have delivered a 10% return over the last 10 years at about 1% per annum.

“If one was to buy the STI index at the bottom of 2Q09, you essentially make 90% until now (~11.2% pa return – double that of investment in housing!), but could have made 86% (~22% pa) if you were to offload it during peak of 3Q13,” says the analyst.

In Goeyardi’s view, the Singapore government’s recent move to cool property measures was “surprising”, but believes it was with the intention to help small medium enterprises (SMEs) unlock their capital tied-up to their mortgage.

“Nevertheless, our channel checks to show flats recently revealed that property agents are hyped about influx of Chinese buyers and market talk of further cooling measures by the government. We have seen many occasions where volumes did recover on impulse / investment buying, and home prices follow, thus stocks could continue to rise,” he concludes.

 As at 11.45am, shares of CapitaLand are trading 1 cent higher at $3.68.

Shares of FCL, GuocoLand, UOL and UIC are trading at $1.77, $1.84, $7 and $3.09 respectively.