Strong residential sales boost real estate stocks, with some real estate stocks rising over 80% | Lianhe Zaobao
Local real estate stocks performed exceptionally well due to strong residential sales, with an increase of over 80%. Analysts believe this is just the beginning, and there may be further upward movement in the future. Large developers such as UOL, City Developments, and Singapore Land's stock prices have significantly rebounded this year, with increases of 40.50%, 29.75%, and 81.82%, respectively. In contrast, the FTSE Straits Times Index saw an increase of 13.44%
The stock prices of local listed real estate developers have welcomed a long-awaited warmth, with many real estate stocks outperforming the FTSE Straits Times Index, even as the index continues to hit new highs and achieve excellent gains. Some real estate stocks have even seen increases exceeding 80%.
Interviewed analysts believe that the current surge in real estate stocks is just the beginning, and they may rise further, continuing to be optimistic about their price prospects.
According to data compiled by Lianhe Zaobao, several large developers such as UOL, City Developments Limited (CDL), and Singapore Land have seen their stocks mostly stagnate or decline over the past five years, but they have bottomed out and rebounded this year, starting a rapid ascent in June. As of September 4th, their stock price increases for the year to date have reached 40.50%, 29.75%, and 81.82%, respectively, marking the strongest momentum seen in five years.
In contrast, the FTSE Straits Times Index has seen a price increase of 13.44% year to date.
Strong Housing Sales Drive Real Estate Stock Performance
Macquarie Capital research analyst Chen Lirui pointed out in an interview with Lianhe Zaobao that the rise in real estate stocks is mainly due to strong residential sales. "Although the real estate projects launched for sale in July are located in the Core Central Region (CCR), they achieved good sales on the first weekend of opening. Part of the reason is that mortgage rates have significantly decreased. Additionally, the deployment of the Monetary Authority of Singapore's Securities Market Development Plan (EQDP) may also stimulate interest in small and medium-sized companies."
Maybank Securities analyst Krishna Guha added that other related macro and micro factors include: inflows of safe-haven funds, declining Singapore interest rates, resilient economic growth, inflows of funds into the stock market from the securities market development plan, and some developers seeking to unlock value and actively engage in capital recovery.
Phillip Securities research director Zhou Guanlong believes that, firstly, developer stock prices are significantly below their book value by 40% to 50%. Secondly, the strong subscription rates for new residential projects will drive profit growth for developers. Finally, the sharp decline in Singapore interest rates will boost the valuations of developers owning commercial properties.
RHB analyst Vijay Natarajan also believes that the key factors for the strong performance of real estate are the robust subscription rates for new developments and the significant drop in the Singapore Overnight Rate Average (SORA).
According to data provided by Huang Weixu, client manager at CMC Markets Singapore, new private home sales in the first half of this year increased by 145% year-on-year, while the Singapore Overnight Rate Average dropped by about 1 percentage point year-on-year, significantly improving financing conditions. Additionally, foreign investment inflows surged by 442% to USD 3.7 billion in the first nine months of this year.
In addition to market factors, FSMOne Singapore research department portfolio manager Yang Huishi pointed out that profit growth for developers is another catalyst for stock prices. Singapore Land is one example of a company with excellent performance, and its profits are expected to continue to perform well Regarding the 5 billion yuan securities market development plan, she said: "This plan puts real estate developers and operators in the spotlight, companies that have historically been undervalued and often overlooked due to the popularity of Real Estate Investment Trusts (REITs)."
Analysts Issue Warning: If the Market Heats Up, the Government May Implement Cooling Measures
Extended Reading
Strong Private Home Sales: UOL's Net Profit Increased by 58% in the First Half of the Year City Developments' Stock Price Rises Over 5%, Regaining Status as Singapore's Largest Developer
Looking ahead at the prospects for developers' stock prices, analysts generally believe that a series of favorable factors for real estate will continue to play a role.
For example, in the real estate market, Huang Wei Xu holds a cautiously optimistic view, believing that favorable factors include demand and interest rate conditions, but he also warns that the private home vacancy rate has reached 7.1%, and housing prices have risen for 12 consecutive quarters, which may trigger regulatory intervention by the authorities.
For Chen Li Rui, if the demand for new projects launched in the remaining months of this year continues to rise, and Singapore's interest rates remain low, developers' stock prices will continue to be favored. She also warns of regulatory risks, as the government may introduce tightening measures if the residential market overheats.
Zhou Guan Long holds a slightly different view, predicting that the upward trend in developers' stock prices will continue, as market sentiment remains strong, although housing prices have not yet risen to a level that necessitates cooling measures.
He also stated that population growth, rising resale prices of HDB flats, and low interest rates will support demand for real estate. Real estate companies that are more willing to realize asset value and return capital to shareholders will likely see stronger stock performance in the future.
Yang Hui Shi also expects the upward trend in developers' stock prices to continue until 2025 and beyond, as the current stock price levels of developers and operators are still below historical average price-to-net asset value ratios (P/NAV), and are significantly discounted by about 50% compared to net asset value, indicating substantial upside potential. Additionally, upcoming private residential development projects will serve as catalysts for profit growth. Investors should consider investing in Singapore real estate stocks and selectively consider increasing their holdings
Real Estate Stocks Dividend Yields Mostly Higher Than Bank Deposits
Given that real estate stocks are expected to continue performing well, investors are optimistic about Singapore's stable policy environment, the expectation of further declines in the overnight Singapore dollar interest rates, and the interest in Singapore's mid-cap stocks brought about by the securities market development plan. Vijay believes these factors will lead to a re-rating of real estate stocks.
"However, a key risk is an unexpected economic recession, tariff increases, and the resurgence of inflation or stagflation."
He advises investors to hold onto high-quality, undervalued real estate stocks, as they mostly offer good dividend yields (over 3%), which are higher than the rates of bank deposits, treasury bills, and Singapore savings bonds.
Yang Huishi recommends stocks with solid fundamentals, substantial earnings, and attractive valuations. She is optimistic about Ho Bee Land, Singapore Land, City Developments, and UOL
