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Analysts: Stronger Property Sales; Time to Buy into Developers?
Aspire | 26 August 2015
By: Raymond Leung
Articles (142) Profile

Local private residential property sales data for July 2015 was released recently. Analysts were surprised as the new home sales figure (excluding Executive Condominiums) surged three times year on year (yoy). This was mainly due to the boost from High Park Residences, which saw a high take-up rate of 85 percent and contributed to 73 percent of the figure.

However, analysts continue to hold a sluggish view towards the property developers for FY15. They find that the sector remains fundamentally weak from the tight government policy and incoming high supply of residential properties. The consensus is that prices for Singapore residential properties are estimated to fall by five to ten percent this year. Therefore, preference will go to diversified property developers with overseas exposures and commercial properties.

Source: New Singapore Private Residences (including. Executive Condos) Supply, URA

 

CapitaLand
CapitaLand (CAPL) is likely the first developer on the minds of investors when it comes to diversified developers. It develops and owns both residential and commercial properties, including offices and shopping malls. The main focus markets of the group are Singapore and China, but the group is also involved in other emerging markets.

However, residential property markets in Singapore and China are facing strong headwinds. To make the matter worse, CAPL is facing lower profits due to the devaluation of the Chinese Yuan and the increasing probability of it being long term. Nevertheless, the wide range of sectors that the group is involved in makes it attractive to analysts and investors. More details can be viewed in this recent Aspire article with in-depth analysis of CAPL.

Source: 1 Month Chart of SGD per CNY, XE.com

Analysts from Macquarie Research reiterated their “Buy” call on CAPL with a potential upside of 35 percent. They find that the counter remains cheap as it is trading at 0.8 times price-to-book ratio which is below their 3 years average of 0.87 times.

City Developments
Owned by the Kwek family, City Developments Limited (CDL) began developing residential properties in Malaysia, to become a global developer and owner of residential and commercial properties. Singapore, China, UK and Japan are the main markets for CDL’s residential property segment.

Through a 60 percent stake in Millennium & Copthorne Hotels (M&C), the group owns over 100 hotels in more than 17 countries across North America, Europe and Australasia. This includes gateway cities such as London, New York, Paris, Auckland, Dubai, Beijing and Singapore.

Source: Distribution of Hotels Owned by M&C, Millennium Hotels

Despite having profit pressure from the devaluation of Yuan, CDL is potentially able to gain from the strong British Pound (GBP). This is due to the higher inflation rate that beat estimates and caused the GBP to gain against most major currencies.

Source: 1 Month Chart of SGD per GBP, XE.com

Analysts from DBS Vickers Research reaffirmed their “Buy” call on CDL with a potential upside of 27.9 percent. They believe that CDL will be able to weather the current market uncertainty well. They cited support from its strong balance sheet and diversified earnings based on its commercial and hotel properties as the main attributes.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.


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