BTO: Analysts upgrade property stock calls

Business Times - 26 May 2009

Analysts upgrade property stock calls

Private residential prices now expected to rise next year

By UMA SHANKARI

 

PROPERTY analysts now expect private home prices to climb again next year - a turnaround from previous forecasts that they would continue to slide into 2010 - as there is now a sense that the residential market has hit bottom.

 

And amid this new- found optimism, analysts' recommendations on several property stocks have been upgraded.

 

The residential price index chalked up its worst-ever quarterly decline of 14.1 per cent in Q1 2009, according to official figures from the Urban Redevelopment Authority.

 

'A bottom has been established for the housing market, as price cuts have catalysed latent demand and accelerated inventory clearance, in our view,' said Deutsche Bank analysts Gregory Lui and Elaine Khoo in a note yesterday.

 

With this in mind, analysts now expect to see the residential price index move up in 2010 - or even as early as the second half of this year.

 

UBS Investment Research, for one, said in a recent report that there is a possibility of higher prices in H2 2009 and 2010.

 

'We think it suggests prices are stabilising and could potentially rise 5-20 per cent in 2010, versus our assumption of flat pricing for 2010,' UBS Research analysts Michael Lim and Regina Lim said in a May 19 note.

 

Likewise, Goldman Sachs is now projecting a 5 per cent gain in private home prices next year, reversing its previous forecast of a 10 per cent fall in 2010.

 

'The recent pick-up in transaction volumes in the primary residential market is a harbinger of price stabilisation being just around the corner, in our view,' the bank said in a May 12 report.

 

Price increases could already be on the way - recent reports have indicated that developers are already raising prices of select units by 2-5 per cent where demand seems resilient.

 

The price creep is difficult to ascertain, UBS said, but it estimates that up to six months ago, early-bird discounts were a permanent feature for new launches. 'Developers have since limited the discount duration to the initial launch,' it said. 'We think this is a positive development, though unexpected, and suggests a high probability of a meaningful recovery in H2 2009.'

 

The drop in prices in Q1 meant that transaction volume showed a significant increase. More than 1,200 homes were sold each month in February, March and April - after just 108 homes were sold in January.

 

'In our view, the strong momentum suggests buyer confidence is returning and could provide the next wave of momentum for developer stock prices,' said UBS. And developers are in stronger positions after inventory clearance this year and cash calls, noted Deutsche Bank.

 

UBS's analysts issued a 'buy' call on City Developments. 'We believe City Developments would be a key beneficiary as it has the largest market share in residential sales volume in Singapore, and its share price is strongly correlated to resale transactions,' said the bank's analysts.

 

Goldman Sachs likewise upgraded CityDev to 'buy' from 'sell'.

 

Deutsche Bank also yesterday upgraded two developers from 'hold' to 'buy' - Keppel Land and Allgreen Properties.

 

However, while upbeat on the residential sector, analysts said the outlook for the office sector is less rosy. Deutsche Bank, for one, expects vacancies to approach 17 per cent in 2012. While the rental decline will decelerate sharply in H2 2009, any recovery is likely to lag, the bank said.