While some see Singapore’s property market as too hot to handle, several analysts argue there’s still money to be made for the long-sighted equity investor.
For the past three years, the government has taken steps to cool the overheated property market, most recently boosting stamp duty on foreign buyers as the land-strapped island nation fights to fend off investment demand.
Private-home prices eased a modest 0.1 percent during the first-quarter – but marked the first fall since 2009 – according to the Urban Redevelopment Authority. Sub-sales transactions, an indicator of speculative activity, have fallen significantly.
Efforts to stabilise the market are working, the government says, though demand for housing remains stubbornly high. Strong liquidity and low interest rates helped sales near three-year high in April, setting the stage for more policy intervention.
Capital Economics Asia economist Daniel Martin said the government faces a crucial test to bring down prices over the coming year.
“If prices don’t start to cool in the next year, then we’re going to be in a fairly dangerous situation where there’s risk of a sharp fall,” Martin said.
“My sense is they’ll go a little further and [require] more down payments on mortgages and standard capital requirements on banks – other macro-prudential measures that make it a little more difficult to buy a house,” he said.
Strategists at Daiwa Securities agreed that more intervention is on its way, and consequently they hold a a negative rating on Singaporean real-estate shares, given that any quarterly increase in home prices “could trigger another policy response by the government, negative for property stocks.”
Still, regulatory risk isn’t enough to deter Abeerdeen Asset Management from exposure to the Singapore housing market via the stock market.
Though share prices have re-rated this year, portfolio manager Kristy Fong said Abeerdeen is “still happy, and positive on our stocks long-term, because property tends to be a reflection of the economy, and we’re generally quite optimistic about the Asian region.”
A move by the nation’s central bank last month to allow the currency to appreciate more quickly sparked a flood of money into the Singapore, according to Capital Economics’ Martin, who expects the tide of global investment flows to strengthen.
“Singapore is a fairly safe market, it looks quite attractive [globally]. It’s a country that investors are looking to at the moment and thinking it’s not as risky as others,” he said.
First-quarter growth in the trade-focused nation beat expectations with a 10 percent jump on the previous quarter, though the government warned that a slowing global economy could frustrate momentum.
A relatively healthy economic outlook coupled with land shortages underpins Aberdeen’s Singapore property-stock outlook. The fund likes firms with solid land assets, and holds heavyweight City Developments Ltd SG:C09 -0.61 percent CDEVY +1.02 percent, as well as smaller names Bukit Sembawang Estates Ltd SG:B61 -0.45 percent, and Wheelock Properties Singapore Ltd SG:M35 -0.61 percent WKSGY 0.00 percent
Abeerdeen’s Fong said City Development has been active in buying land from the government sales and owns a strong portfolio of tracts of low-cost land. Hotel holdings outside of Singapore further boost City’s appeal, she said.
“The hotels give them diversification – these hotel assets are sitting on prime land in places like the UK It’s an asset play,” Fong said.
Smaller player Bukit Sembawang offers a solid pipeline of projects and is “very profitable and still trading on the 50 percent discount to its net-asset value,” she said.
One notable omission from the portfolio is CapitaLand Ltd SG:C31 0.00 percent CLLDY -3.97 percent, Southeast Asia’s biggest developer.
Fong said the firm has a high asset turnover, and its model is based on cycling capital through real-estate investment trusts, while Aberdeen “prefers the traditional developers that buy and sell land.”
Broker CLSA has CaptiaLand under review, while noting the stock is a good proxy to China’s residential and retail sectors, with 41 percent of its gross asset value attributable to China.
However, CLSA has a buy recommendation on CapitaMall Trust SG:C38U +0.85 percent CPAMF +0.72 percent, supported by its “exposure to a population enjoying rising disposable income and a low unemployment rate.”