SINGAPORE (Jan 16): Maybank Kim Eng remains “positive” on Singapore’s property sector while flagging UOL and City Developments (CDL) as the best large-cap proxies as the market continues its cyclical upturn.

These top picks have been rated “buy” at target prices of $9.85 and $13.80, representing a respective 15% and 6% discount to RNAV and price-to-book value ratios of 0.85 and 1.26 times.

In a Monday report, analyst Derrick Heng says he sees more upside in 2018 as households displaced in the en bloc process seek out replacement households.

 “While the recent uptick in mortgage rates is a dampener to property demand, our updated data points showed that affordability indicators remain healthy,” notes Heng.

For investors with lower-liquidity thresholds, the analyst says he sees “compelling valuations” in the mid-cap space with GuocoLand and Bukit Sembawang as his preferred stocks which have been both rated “buy” at target prices of $2.95 and $8.25 respectively.

He also highlights new launches – as suggested by consultancy and media reports that 28 projects with almost 13,000 units could be launched this year – as a potential catalyst to watch for developers under the research house’s coverage.  

“CityDev is due to launch luxury condominiums (New Futura and South Beach Residences) and a mass market project on Tampines Ave 10. UOL will launch mid-range condominiums at 45 Amber Road and the redevelopment of Raintree Gardens. The launch of luxury condominium 8 Saint Thomas and landed homes (Nim Collection and Luxus Hills) by Bukit Sembawang could reverse a trend of falling earnings over the past six years,” elaborates the analyst.

Meanwhile, Heng opines that the recent uptick in mortgage rates are manageable, being widely-anticipated, in his view, and thus should not come as a surprise.

As such, Maybank has refreshed its database to reflect updated mortgage rates and home prices in 4Q, as well as an estimated healthy home price-to-income ratio of 4.5 times for mass-market private homes.

“With buoyant home buying sentiment and an improving economic outlook, we see upside in 2018 and expect developers to sell 12,000 units this year with the 3,000+ households displaced in the enbloc market last year driving incremental demand… Overall, affordability of homes in Singapore is not excessive,” concludes Heng.  

As at 9.40am, shares in UOL, CDL, GuocoLand and Bukit Sembawang are trading at $9.32, $13.31, $2.27 and $6.40, respectively.