Atiqah Mokhtar Published on Fri, Jun 04, 2021 / 5:20 PM GMT+8 

Credit Suisse believes en-bloc momentum will pick up in the coming month, easing developers’ land bank concerns.

Analysts Louis Chua, Nicholas Teh and Terrence Lee believe the market is “on the cusp of a virtuous en-bloc cycle”. They point out that 10 residential en-bloc deals worth $354 million were executed in the last 12 months, with another 18 more projects in the pipeline totalling more than $7.3 billion.

“We draw similarities between the current en-bloc cycle and the past episodes in 2005-2007 and 2016-2018, with key drivers – healthy residential sentiment, dwindling inventory set to breach record lows by early 202, and limited government land supportive,” the analysts say in a May 31 research note.

But the analysts note that this time will be different, with policy tweaks made since the last en-bloc cycle likely to moderate influence on the en-bloc market, especially for large sites.

Hence, they don’t anticipate the same magnitude of deals compared to 2005-2007 ($22.3 billion) and 2016-2018 ($19 billion), given that “unhealthy exuberance” in the last cycle was partial contributor to the property cooling measures imposed in July 2018.

To that end, they view that the en-bloc market remains the most viable alternative to land bank for developers, while also providing opportunities to unlock value via redevelopments.

They believe that developer valuations have already discounted for significant headwinds, with developer valuations at 0.7 times P/B. “Y-t-d, we believe the spectre of  cooling measures have capped the sector re-rating, in spite of rising residential sentiment and active efforts by developers to unlock portfolio value,” they say.The analysts have maintained their ‘outperform’ rating for City Developments (CDL), CapitaLand and UOL Group.