http://www.straitstimes.com/archive/...ution-20140628

Developers' shares shine but analysts urge caution

They cite possible oversupply situation over next two years

Published on Jun 28, 2014 1:12 AM

By Jonathan Kwok


PROPERTY developers' shares have staged an impressive rebound in recent months but analysts remain cautious at best on their outlook.

The FTSE ST Real Estate Holding and Development Index, a 17-member gauge that includes big names like CapitaLand, City Developments, Keppel Land and UOL Group, has jumped 12 per cent since its recent low on Feb 3.

That leaves it at 3 per cent higher than a year ago - a prospect that seemed unthinkable when the index plummeted early this year on fears that the upcoming high supply of new units will impact profits.

One factor that has undoubtedly helped has been the raft of takeover bids for real estate companies.

LCD Global Investments, Hotel Properties and CapitaMalls Asia have been the subject of buyout offers in recent months.

Of course, these developers are not pure-play residential companies - LCD Global and Hotel Properties are more well- known for their hotel portfolios while CapitaMalls Asia is a pure- play shopping malls company.

Still, the offers have sparked interest in the real estate sector with benefits for other property companies, regardless of which real estate segment they operate in.

Analysts are still neutral to negative on residential property developers, however, citing the possible oversupply situation over the next two years which has not changed.

"We forecast residential prices to dip 10 per cent to 20 per cent over 2014 to 2015 but see a price crash in excess of 20 per cent to be unlikely, even after accounting for the anticipated physical oversupply and interest rate uptrend ahead," said OCBC Investment Research in a note this week.

"Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften.

"Several key data points had previously corroborated our view - firm sales at d'Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL's Thomson Three - and we believe the latest set of sale figures in May 2014 further supports this."

OCBC forecasts new private home sales to dip 33 per cent this year to 10,000 units with prices in the mass-market segment more at risk versus the mid-tier and high-end segments.

The market will benefit over the medium term should there be a reversal of certain government property curbs, which OCBC says may happen once headline prices decline in excess of 10 per cent.

OCBC likes CapitaLand, Keppel Land and OUE and it is "neutral" on residential property companies in general.

It has a target price of $3.79 on CapitaLand, $4.09 on Keppel Land, and $2.87 on OUE.

Barclays has a more downbeat view on the segment, saying earlier this month that it remains negative on residential developers. It predicts an oversupply of private housing properties and expects prices to fall 20 per cent by 2015 in view of an expected interest rate rise, coinciding with peak supply.

Barclays thinks that the vacancy rate could reach a record 10 per cent by 2016.

It is "underweight" on City Developments, which it values at $9.08 and Keppel Land, which it thinks is worth $3.34.

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