Analysts divided over whether property bull run has more to go

April 23, 2007

Analysts divided over whether property bull run has more to go

Some think the party is largely over; others believe fundamentals are still strong

By Fiona Chan, PROPERTY CORRESPONDENT


WITH the property market upswing well under way and a stock market that's sizzling, it is no surprise that property stocks have soared in the past six months.

Almost all of them have hit record highs in recent weeks, from property giants such as CapitaLand and City Developments to smaller players including GuocoLand and Hotel Properties.

In general, these counters are riding on the buoyant property market, where all guns are firing and prices for all types of properties are rising across the board.

The potentially million-dollar question is: Is it too late for a slow-moving investor to get in on the action now?

Analysts are divided over this issue.

Some believe the party is largely over, while others argue that the strong fundamentals of property stocks will continue to win the day.

Mr Winston Liew of OCBC Investment Research is among those who think that property stocks have generally risen so much and so quickly that they carry limited upside now.

'Valuations are not cheap anymore, especially for the big ones,' he said, adding that property stocks have soared so much that prices of physical properties 'need to catch up' with them.

In the past six months, CapitaLand's share price has surged 60 per cent, while City Developments shares have gone up 40 per cent.

The stocks of smaller developers GuocoLand, SC Global and Hotel Properties have more than doubled in price.

In contrast, private home prices have risen by only 8.6 per cent in the same period. Office property values for the whole of last year went up 17 per cent.

'Unless property prices catch up more than the market expects, there isn't much more upside,' Mr Liew said.

He thinks it is unlikely that prices will catch up enough, as that would imply 'fairly lofty asset inflation'.

'I do not anticipate that happening, and even if it does, it will also mean rampant speculation, which could and would encourage government intervention, so it would not be sustainable,' he said.

Although Mr Liew said property prices will continue to rise, he noted that they were unlikely to reach the levels implied by the stock market, which would require them to jump '30 to 40 per cent over the next year or two'.

'There's not much point in going in now and trying to squeeze out another 5 to 10 per cent increase in share prices,' he added.

'For new investors, I think it's a little bit too late at the current valuations.'

But other analysts are more optimistic.

Mr Wallace Chu from DBS Vickers believes that the fundamentals for developers, whether their business is mainly in Singapore or overseas, remain strong.

He likes companies that have large Singapore land banks and those that are expanding in Vietnam and, to a certain extent, India.

He also thinks that, barring any unforeseen circumstances, the earliest time for a market slowdown will be in 2009.

This is when 'the next peak of upcoming completions would be', he explained.

But even then, Mr Chu expects that the impact of a slowdown on developers 'should be limited' as they would have already locked in profits from pre-completion sales.

'The fundamentals are still strong; the wave is not over,' he said.

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AsiaOne
23 April 2007

Positive sentiments and strong regional economic growth are key drivers to creating opportunities for growth and product innovation to enhance Singapore's development as a gateway to Asia's property finance and investment markets, said Minister for Trade and Industry Lim Hng Kiang.

Highlighting the potential of the property derivatives market, Mr Lim told the Citigroup Asia Pacific Property Conference earlier today: "Property derivatives offer the potential for property companies, asset managers, banks and investors to hedge or re-balance their property exposure according to their views on the market.

"A key criterion to develop the property derivative market in Singapore would be the existence of transparent, reliable and well-followed direct property indices, which serve as reference points or benchmarks for structuring of property derivative products."

Mr Lim, who is also Deputy Chairman of the Monetary Authority of Singapore, added that industry players are currently studying the construction of property indices based on the Singapore property market.

"We are excited to see the introduction of these property indices which would enhance information on Singapore's property market and provide benchmarks for structuring property derivatives and other innovative investment products.

"These developments will add to the breadth and depth of Singapore's markets by providing investing and hedging tools for market participants in a cost-effective and flexible manner. Moreover, they would lead to development of expertise in product structuring as well as real estate portfolio analysis and performance measurement," he said.

Mr Lim also pointed to other areas in property that Singapore is developing to tap into real estate direct and financial investment opportunities fueled by Asia's growth.

For example, Asia's largest commercial mortgage-backed security was issued jointly by two Singapore REITs - CapitaMall Trust and CapitaCommercial Trust. In addition, Singapore-listed REITs have contributed 20 per cent of all issuance of mortage-backed securities in Asia-ex-Japan last year, an indication of the growth of Singapore's debt market.

Singapore's capital markets are the means for global investors to access Asian opportunities, said the minister. Total assets under management in Singapore currently exceed S$720 billion, with more than half of these funds invested in the Asia Pacific.

The Singapore Exchange has also become an established listing venue for regional property companies based in Singapore and foreign property developers.

Singapore's real estate investment trust (REIT) market also gives investors direct exposure to assets with stable cash-flows. Since the first REIT listing in 2002, the Singapore REIT market has become the largest REIT market in Asia outside of Japan. Currently, Singapore has 16 listed REITs, making up a total market capitalisation of over S$26 billion.

Singapore REITs offer investors access to a various real estate assets, such as retail malls, office buildings, industrial properties and serviced apartments. The first dedicated hotel REIT and Asia's first healthcare REIT were launched in the Singapore market last year.

Mr Lim said: "To sharpen Singapore's edge as an Asian REITs hub, it is crucial for us to maintain a conducive environment both for issuers and for investors.

"To this end, MAS regularly reviews its regulatory regime to keep pace with market development while providing adequate safeguards for investors and issuers, in close consultation with the industry."

Singapore is the first country in Asia to introduce a regulatory framework to facilitate the offering of REITs.

Potential for the REITs market to grow is very high, said analysts. Although the market capitalisation of REITs in Asia has grown from about US$40 billion (S$61 billion) in 2005 to US$63 billion in 2006, estimates suggest that the current market represents a small 4 per cent of investible-grade real estate in Asia. By contrast, estimates for Australia are 50 to 60 per cent.

"This suggests immense potential for increased securitisation of Asian real estate assets and for diversification beyond the conventional types of properties," said Mr Lim.