CFA Society Singapore
SINGAPORE (Sept 18): Singapore property prices are expected to rise by 5-10% next year after bottoming out this year as the nascent recovery spreads to the mid-range and high-end segments in the next wave, says UOB Kay Hian.
This is driven by replacement demand from buyers who have sold their homes in en bloc sales and a pickup in homebuying interest from foreigners, says UOB Kay Hian lead analyst Vikrant Pandey in a Monday report.
The next wave of recovery in the property sector will predominantly be driven from bottom up, starting from the mass-market and flowing over to the high-end segment. The return of enbloc sales and greater scope for foreign participation should power the high-end segment ahead, benefitting developers with such landbank exposure.
“Our top picks are Wing Tai, GuocoLand and Wheelock,” says Vikrant with target prices of $2.61, $2.80 and $2.33 respectively.
Already, the collective sales value transacted from Jan to Aug has topped $3 billion, exceeding the combined transactional value in the previous four years from 2013 to 2016.
However, Vikrant believes the market is still in the early stages of the en bloc fever, which could run until the end of next year, as a surge in en bloc sales could span between six to eight quarters.
The collective sales in 2016/17 YTD is comparable to 2011/12, but only 21% of the cumulative sales transacted in 2006/07, suggesting further room for more en bloc sales, says UOB.
The 2006/07 en bloc sales cycle took out around 10,000 units and correspondingly minted a similar number of millionaires seeking replacement properties.
In the current cycle, about 2,000 units have been taken out, with another 1,000 units in advanced stages. As the cycle progresses further, collective sales could be fuelled by more replacement demand. The wealth effect would likely see millionaire en bloc buyers upgrading to the mid/high-end segment, and further feeding the cycle.
While the 2006/07 enbloc sales cycle took out around 10,000 units, it put back twice as many units into the market. According to JLL estimates, the 3,000 units -- including the ones launched for tender -- could yield 12,000 units in new developments.
Shares in Wing Tai, GuocoLand and Wheelock are trading at $2.10, $2.29 and $1.89 respectively or 27.2, 11.6 and 23.8 times forward earnings.