Published November 7, 2006

Mass market property picking up soon: Merrill
Report identifies CityDev as the preferred property play here


MERRILL Lynch reckons the strong recovery in higher-end property is about to spill over to the mass market as economic gains from services, logistic and manufacturing trickle through to the wider economy.

Boom: Mass market properties such as The Centris are expected to see a revival due to the two integrated resorts, according to Merrill

'The fact is that while high-end property is up 20 to 40 per cent in the past year, the rest of the sector has gone essentially nowhere for five years,' the investment bank said in a regional investment strategy report released yesterday. As 'ancillary businesses flourish and Singapore achieves full employment, the domestic economy and non-high end segments of the property market will move too', the report said. Investors have so far focused on the high-end of the property market, with many private bankers and hedge fund managers arriving in Singapore and in anticipation of the integrated resorts, Merrill Lynch said.

Because of this, prices at the top end have climbed and in some cases matched the highs of a decade ago. But prices of mid-tier property have essentially been flat - zero to 5 per cent in the past five years - and are still 30-35 per cent below their peak 10 years ago.

Merrill Lynch said the outlook for the mass market has been bleak for two reasons: fears that jobs being created in the service sector will be contained to the high-end, and the fact that the gap between prices of HDB flats and private housing is still wide, making it difficult for people to 'upgrade'.

Merrill Lynch believes the economic trickle-down effect will offset the first factor, and points out that the gap between public and private housing was much wider back in the 1990s but that did not stop private housing doing well.

The report identifies City Developments as the preferred property play among listed developers here. Merrill Lynch's regional property analyst Sean Monaghan has a 'buy' call on the stock.

The report said: 'It (CityDev) has the largest land bank in Singapore - over six million sq ft of land, double that of CapitaLand or Keppel Land, which have focused more on China. Over the next six to 18 months, CityDev will be in the best position to launch new projects.' Merrill Lynch estimates that more than half of CityDev's land bank is mass market.

The investment bank also has a 'buy' call on CapitaLand, but rates Keppel Land 'neutral'. The report said some of the credit for the expected mass market revival is due to the two integrated resorts being built at a total cost of US$6.8 billion - about a quarter of Singapore's US$45 billion in fixed capital expenditure, which itself generates a third of domestic demand.

'Our best guess for a multiplier is around three times, or a 15 per cent boost to the island's US$133 billion economy,' Merrill Lynch said.

'We estimate jobs created at the resorts of around 30,000 to 50,000, with another 15,000 to 20,000 generated elsewhere.'