OCBC: Singapore developers’ valuations remain compelling

Construction site in SingaporeConstruction site in Singapore

The valuations of Singapore developer shares remain “compelling” after the release of data showing a property price jump, OCBC said in a note on Tuesday.

For the first quarter, the index for private residential property prices jumped 3.1 percent on-quarter, according to the flash estimate from Singapore’s Urban Redevelopment Authority on Monday; that was an acceleration from the fourth quarter’s 0.8 percent on-quarter rise.

“We deem this as a strong set of numbers as we were previously projecting residential prices to grow 3 percent to 8 percent this year, while the first quarter of 2018’s flash estimates also represent the highest quarter-on-quarter increase since the second quarter of 2010 (up 5.3 percent),” OCBC said. “We now expect the full-year growth figure to come in at the upper-end of our forecast or even potentially exceeding it.”

But even as property prices are climbing, the FTSE ST Real Estate Holding & Development Index (FSTREH) is trading at a blended forward price-to-book ratio of only 0.67 times, below the 10-year average of 0.80 times, OCBC noted.

“We view this as compelling,” it said.

It kept an Overweight call on the Singapore residential sector, with top picks as City Developments, UOL Group and CapitaLand, all of which it rates as Buy.

However, OCBC pointed to a potential downside risk of continued strong price rises if the government were to introduce further tightening measures. But it added, that could be mitigated by more supply from upcoming government land sales and en-bloc project relaunches.

The city-state began implementing a series of cooling measures starting from 2011 as low interest rates globally spurred an inflow of funds into the property market. That had sent Singapore’s housing prices surging more than 60 percent between 2009 and 2013, sparking fears a bubble might be forming in a market that has a long memory of the late 1990s Asian Financial Crisis and the resulting property crash.