Published June 16, 2007

Property stocks up despite major govt land sales programme

S'pore Properties Equities Index rises 7.5 points to hit a one-year high


(SINGAPORE) Property stocks continued to climb on the Singapore Exchange yesterday, showing that investors believe that property prices will not be hit by the government's decision on Thursday to release more land for development.

The Singapore Properties Equities Index, which tracks 23 property stocks, rose 7.5 points, or 0.5 per cent, to a one-year high of 1628.6 - led by increases in the shares of UOL, CapitaLand, Wing Tai and SC Global.

Analysts said that property stocks were climbing despite the future increase in the supply of residential sites as the present property bull run is fuelled mainly by prices in the luxury segment. The sites that will be released in the government's latest land sales programme are all in suburban areas, which means that they will be developed into mass market homes.

In addition, more than half - 12 out of 20 - of the residential sites on offer are on the reserve list, which means that developers can choose not to trigger a public tender by bidding for the sites.

As Daiwa Institute of Research analyst David Lum said: 'The government is not forcing them (the sites) down developers' throats.'

On Thursday, the government announced its biggest land sales programme in about a decade, widely thought to be a move to contain the rise in property prices and rents, which could harm Singapore's economic competitiveness if left unchecked.

It offered a total of 41 sites, of which 20 are residential sites meant for mass market homes. Of these 20 sites, eight are new sites.

The plan, for now, seems to be to keep prices in the mass market affordable for the mainly Singaporean customer base, while letting market forces regulate prices in the luxury segment, where there is a high proportion of foreign buyers, analysts said.

'I think basically, the land sales programme showed that the government is concerned only with the mass market,' said Kim Eng property analyst Wilson Liew.

Similarly, Merrill Lynch said in a research note: 'We believe that the government is planning to release such a large number of mass market sites to address the lack of development land available for the mass market, as well as to keep prices in that segment affordable.'

Mass market prices have been climbing, but they still lag the rate of increase of prices in the luxury segment. In Q1 2007, prices of uncompleted projects outside the central region, which generally refers to mass market homes, rose 1.4 per cent, compared to a 7.3 per cent hike in home prices within the core central region - which includes Districts 9, 10, 11, Marina Bay and Sentosa.

But with most listed developers here concentrating on the luxury and high-end segment, the new residential sites announced under the government's latest land sales programme will have little impact on the developers themselves, most experts predicted.

Citigroup analyst Wendy Koh said that the immediate impact will be minimal. 'We remain positive on stocks with exposure to the residential and office markets,' she said. 'The new supply is necessary and not excessive, in our view.'

There is still a price upside for most property stocks listed here, as property prices in all segments are still set to rise, said Mr Lum. For now, the market is taking the release of more land by the government as a sign of strong property demand.