Analysts warm to Singapore property stocks

Reuters

SYDNEY (MarketWatch) � 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% 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.

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Efforts to stabilize 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 Aberdeen 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 Aberdeen 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% jump on the previous quarter, though the government warned that a slowing global economy could frustrate momentum.

Stock picks

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 � CDEVY , as well as smaller names Bukit Sembawang Estates Ltd. SG:B61 �, and Wheelock Properties Singapore Ltd. SG:M35 � WKSGY

Aberdeen�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 U.K. 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% discount to its net-asset value,� she said.

One notable omission from the portfolio is CapitaLand Ltd. SG:C31 CLLDY , 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% of its gross asset value attributable to China.

However, CLSA has a buy recommendation on CapitaMall Trust SG:C38U �CPAMF �, supported by its �exposure to a population enjoying rising disposable income and a low unemployment rate.�