http://www.straitstimes.com/archive/...-exec-20140702

Softer property market could hit local shares: UBS exec

Published on Jul 2, 2014 1:52 AM

By Yasmine Yahya


UBS strategists have warned that a softening property market could affect local shares in this half of the year while labour market restructuring could curb economic growth despite a global pick-up.

Ms Tan Min Lan, the Swiss bank's head of its Asia Pacific Investment Office, told a conference yesterday: "Historically, Singapore, because it is such a small and open economy, tends to have quite a nice bounce in growth when there's a cyclical recovery."

But this year, UBS expects the economy to expand by just under 4 per cent - unchanged from last year, when gross domestic product rose 3.9 per cent.

The briefing took place on the sidelines of UBS Wealth Management's annual Asia Pacific forum.

The main drag on the local stock market this year will likely be property developers, "because if they are not churning volume, then basically earnings drop", said Ms Tan.

The stock market has also traditionally had a close co-relation with the property sector: When one weakens, the other follows suit.

UBS expects the property market to soften further in the years ahead, Ms Tan added.

"Our view has been that the real estate market will go through a multi-year period of decline. This is a function of incoming supply and very tight policies."

In the past three years, she noted, the average supply coming into the market was about 24,000 units a year but that will rise to about 55,000 units a year between this year and 2016.

"The vacancy rate now is about 6.6 per cent, which is the highest since 2006, so we do believe the vacancy rate could by 2016 rise to about 8 to 9 per cent, and it would not be inconceivable for private rents to fall 20 to 25 per cent over this period," she added.

"Clients or private individuals who are over-invested in real estate really have to think about what they want to do in the coming three years or so."

In the meantime, investors who are still interested in getting some exposure could still buy into real estate investment trusts that focus on prime office space, where rentals are still going strong, Ms Tan said.

UBS is also "selectively positive" on the banking sector, as a gradual rise in interest rates will ease the pressure on the local banks' net interest margins.

Consumer staple stocks are another area for income and growth, Ms Tan added.

"But we would avoid anything with very high domestic revenues and domestic costs, especially labour costs, because the unit labour cost in Singapore will still be rising faster than productivity in the next 12 months or so."

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