Real estate counters good value for money, say analysts

Real estate counters good value for money, say analysts

Stock market investors look to have brushed off the Government's property cooling measures earlier this month as real estate counters have been rallying over the past two weeks.

Equity analysts have mostly been bullish on the sector, saying that the cheap valuations of these shares and their strong dividend yields make them good additions to a portfolio amid volatile markets.

They have also said that real estate firms are among the few companies on the mainboard that could possibly surprise the market with better-than-expected financial results in the third quarter given that home sales have remained robust throughout the year.

Just last week, the Urban Redevelopment Authority (URA) announced that 2,621 new private homes were sold in September, up 83.7 per cent from August.

The FTSE ST Real Estate Holding and Development sub-index dropped 2.7 per cent in the week following the Monetary Authority of Singapore's (MAS) announcement on Oct 5 that it will restrict home loans to a maximum of 35 years.

The move was designed to cool the market and stop home buyers from over-extending themselves.

But by Thursday, the sub-index, which comprises 16 property developers listed on the mainboard, had regained all the lost ground and risen to a 52-week high.

"We believe that an environment of strong liquidity continues to drive demand and sales of mass-market units priced below $1.2 million," wrote OCBC Investment Research analyst Eli Lee in a report after the URA's numbers were announced.

He cited City Developments as his top pick for the sector, given its strong balance sheet and the fact that it has a good number of mass-market projects.

The counter slipped four cents to $11.41 on Thursday.

AmFraser Securities believes the luxury sector is the way to go, naming SC Global as its favourite property stock. The counter added half a cent to $1.13 on Thursday.

"We like SC Global for its concentrated exposure in luxurious residential property, a segment that we think will be least affected by the cooling measures and will continue to have the most resilient or consistent demand," the brokerage said in a report last week.

Barclays Research analyst Tricia Song, meanwhile, favours CapitaLand, which rose five cents on Thursday to $3.33.

She said in a research note on Oct 10 that the firm is expected to reverse its three-year share price under-performance as it is entering "harvest" mode, with its $20 billion worth of investments over the past three years soon beginning to pay off.

Ms Song also expects improved property sales and prices in China to boost SC Global's bottom line and noted that it is "the cheapest among the large cap Singapore developers".

DBS Vickers is less bullish about property stocks, believing the possibility of more cooling measures and the ongoing economic slowdown will heighten risks for residential prices.

"September private home sales jumped a record 83.7 per cent month on month even as the MAS imposed more measures by tightening private property and HDB mortgage loan tenures," the brokerage said in a strategy report last Friday.

"Singapore's Trade Minister quickly responded by saying that the Government stands ready to act on the property market (again) if necessary."

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