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Escalating land prices reflect residential upcycle?

Shares of some property names such as CapiaLand Investment, Hong Kong Land and City Development are amongst some of the index outperformers since the month of September. The share prices reflect the rising prices in the property market, where the most recent results of two government land tenders in the one-north precinct saw active participation by developers and elevated bid prices. 

In a note published by Macquarie Research on 28 September, they talked about the recent land tenders and their view on some of the developers such as City Development and UOL…

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Strong land prices seen in one-north land tenders

The results of two government land tenders in the one-north precinct saw active participation by developers and elevated bid prices. The top bids reflect a sizeable 21-24% increase in land rates from two years ago and is a harbinger of further hikes in home prices. Macquarie Research (MQ) reiterates their Outperforms on leading Singapore developers – CityDev and UOL. MQ sees the steep relative net asset value (RNAV) discounts on the stock prices as attractive disconnects from rising property prices. 

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Bullish land bids emboldened by Eden

Two sites in one-north. The two sites under discussion are Slim Barracks Rise Parcel A & B. They are located in the heart of the one-north precinct, which is home to many biomedical, technology and media companies. Parcel A is a slightly larger one that can yield 265 residential units, while Parcel B will have about 140 units. Both sites include a small commercial component and are in close proximity to Buona Vista and one-north MRT stations. 

Active participation. Both sites were keenly contested with 10 bids submitted for each. Kingsford (under the name of Gao Xiuhua) submitted the top bid of S$1,246 psf for Parcel A, while EL Development emerged top for Parcel B at S$1,210 psf. 

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These top bids are 21-24% higher than the price paid for the site of one-north Eden just two years ago. With an estimated breakeven of S$1,850 to 1,950 psf, MQ expects eventual launch prices of more than S$2,100 psf. 

Emboldened by success at one-north Eden. MQ believes the strong bids are encouraged by the successful launch of one-north Eden in April 2021. Over 95% of the 165-unit project by a joint venture between Hong Leong Holdings and Mitsui Fudosan has been sold with an elevated average of around S$1,950 psf. 

Outlook

MQ believes CityDev and UOL offer the best exposures to Singapore’s residential upcycle. MQ has an Outperforming rating on both stocks with a 12-month target price of $9.55 on City Dev, and a 12-month target price of $9.40 on UOL, both based on a relative net asset value methodology.