Capitaland Investment ADD, TP S$4.59, S$3.21 close
Capitaland Investment (CLI) is one of the largest real estate investment managers in Asia. Growth in its funds under management and fee income, efficient capital deployment, and improved operating performance of its investment and lodging properties would likely underpin its ROE expansion. The stock is trading at a 37% discount to RNAV.
City Developments ADD, TP S$8.97, S$7.48 close
In our view, City Developments’ (CIT) land restocking activities would extend the visibility of its residential earnings. Valueunlocking activities and the nascent recovery of the global hospitality industry
could catalyse its share price. The stock is trading at a 54% discount to RNAV.
UOL Group ADD, TP S$8.00, S$6.13 close
UOL has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through Singapore Land Group (SLG SP, NR). UOL is trading at a 54% discount to RNAV.
Good take-up of new launches boosts sales
- Sep home sales boosted by two new launches.
- We anticipate a quieter market post the Sep cooling measures.
- We stay sector Overweight due to inexpensive valuations. Our sector top picks: CIT, CLI and UOL.
Two new launches boosted Sep sales
? According to the Urban Redevelopment Authority (URA), Sep 22 monthly home sales in Singapore came in at 992 units. Excluding executive condos (ECs), private home sales amounted to 987 units (+125% mom, +18.3% yoy). The boost in mom sales was due to the good take-up at the newly launched Lentor Modern and Sky Eden @ Bedok. Together, these 2 developments made up 64% of transaction activity for the month.
? Volume transactions in the Outside Central Region (OCR) were most active, accounting for 69% of sales in Sep. Meanwhile, projects in the Core Central Region (CCR) took up another 20% of sales. Take-up in city fringe areas accounted for the remaining 11%.
We expect slower transactions post the Sep cooling measures
? With the latest data, new home sales (excluding ECs) for the first 9 months of 2022 totaled 6,643 units (-35% yoy). On 30 Sep 2022, the government introduced another round of property cooling measures which included i) raising interest rate floor for Total Debt Service Ratio (TDSR) and Mortgage Service Ratio (MSR) computation to 4% (from 3.5%), ii) lowering loan-to-value (LTV) for HDB housing loans to 80%, and iii) imposing a wait-out period of 15 months for private property owners (PPOs) buying nonsubsidised HDB flats. We believe this is likely to result in quieter volume activity in the immediate term as market sentiment is affected, as well as potential buyers evaluating the impact of these changes on affordability. As such, we lower our primary home sales volume projection to 8,000 units for 2022F.
Homes prices continued to rise in 3Q22
? URA announced 3Q22 residential property flash price index which showed private home prices rising 3.4% qoq in 3Q (vs. +3.5% qoq in 2Q) led by Outside Central Region (+7% qoq) while home prices in the Rest of Central Region increased 2.5% qoq, and Core Central Region (+2.3% qoq). With the latest data, private home prices have risen by 7.8% for the first 9 months of 2022. Meanwhile, HDB resale price index showed a 2.4% qoq rise in 3Q, bringing 9MTD price hike to c.8%. Based on SRX data, private resale home prices inched up by 1.7% mom in Sep 22, bringing YTD improvements to 8%.
Reiterate sector Overweight
? Developers’ valuations still look inexpensive to us, as they are trading at a 45% discount to RNAV, close to 1 s.d. below the long-term mean discount. We prefer developers with visible residential pipelines and strong balance sheets that would enable them to tap into opportunities during this slower cycle. Our preferred picks are CIT, CLI and UOL.
? Potential sector rerating catalysts: good sell-through rates for new launches. Downside risks: faster-than-expected interest rate hikes, slower economic outlook, and property-cooling measures that could dampen demand for housing.