Nomura: Five possible Singapore property surprises for 2019

Singapore public housing blocks in 1968; unknown location.Singapore public housing blocks in 1968; unknown location. Taken by Leonard Shaffer.

Nomura tipped overweighting Singapore property developers this year in its annual list five possible sector surprises with solid potential risk-reward.

The list was published before Monday’s surprise announcement that CapitaLand will be acquiring two Ascendas-Singbridge holding companies in a deal with an enterprise value of S$11 billion.

  1. Nomura predicted property developers’ share prices would gain an average 30 percent this year.
    “Given the bearish market expectation at the start of the year, we think there is ample room for developers’ stock performance to surprise on the upside in 2019,” Nomura said.
  2. It forecast primary home sales volume would climb 25 percent on-year, noting more than 60 projects with a total of 25,000 units are due to be launched in 2019, which marks a 60 percent on-year increase from 2018’s around 16,000 units launched.
    “Even an initial take-up of 30 percent would represent 75 percent of developers’ total sales in 2018,” it said. It added that a 25 percent increase, or to 12,500 to 13,000 units, would imply average monthly sales of around 1,000 to 1,100 units, or around 2017 levels.
  3. Residential property rents could rise 10 percent on-year, Nomura forecast, noting only 13,200 private condo and apartment units are expected to be completed over 2019-2020, the lowest since 2005-07, when rents gained an average 19 percent per annum.
  4. Singapore REITs will likely underperform developers, with the Singapore 10-year government bond yield set to end the year over 2.5 percent, Nomura forecast.
  5. Nomura pointed to the potential for changes to REIT regulation in the city-state, with existing tax concessions due to expire in March 2020.
    The changes could include letting the concessionary withholding tax rate of 10 percent on distributions to non-individual non-resident investors expire, Nomura said.

Nomura also said that its 2018 list of surprises had an above-average “hit-rate” of around 60 percent. It had two predictions right: That home prices would continue to rise despite higher interest rates and the government would intervene with new cooling measures, and secondly, that retail REITs would be the best performing REITs.

It had two “half hits,” as it had forecast the Singapore 10-year government bond yield would rise to 3 percent, when it topped out at 2.68 percent, before giving back most of the rise to end the year at 2.04 percent, only 4 basis points above end-2017 levels.

Nomura last year also forecast that both property developers and S-REITs would underperform the broader Singapore market, but while developers fell an average 21 percent last year, underperforming the Straits Times Index’s 9.8 percent loss, the S-REIT index was only down just 9.2 percent in 2018, outperforming the STI.

One prediction for 2018 was outright wrong, which was that new REIT regulations would target management fees, Nomura said.

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