http://www.straitstimes.com/Money/St...ry_570900.html

Aug 26, 2010

Home sales soar but not property stocks

Measures to dampen speculation hurting sentiment, say traders

By Goh Eng Yeow


THE sizzling residential property market has failed to radiate its heat onto property counters traded on the local bourse.

So far this year, property developers have outperformed the benchmark Straits Times Index (STI) by a mere 2 per cent.

The FTSE ST Real Estate Index, which tracks 43 property counters and real estate investment trusts, has done no more than closely shadow the STI.

A casual observer would have expected a far stronger showing by these stocks. After all, record prices have been achieved for mass market condominiums and sales have been brisk for new homes.

The sales figure last month rebounded by 82 per cent to 1,544 units from June to bring total sales for the first seven months to 9,957 units.

But property developers are trading at huge discounts to their valuations. One research house - DBS Vickers Securities - estimates the sector's discount to valuations at a hefty 21 per cent. In contrast, three years ago, similarly buoyant sales had propelled real estate counters to trade at a premium to their valuations.

The depressed state of the counters is not confined to the local bourse. In Hong Kong, where residential property prices have been hitting record highs, property giants such as Cheung Kong and Sun Hung Kai Properties have had a similarly lacklustre run this year.

The malaise has affected all property counters, from regional plays with big exposure to red-hot markets like China to boutique developers with projects in Singapore.

Traders note that sentiment for real estate counters has taken a hit from various measures taken by markets, such as mainland China and Hong Kong, to dampen the speculative froth building up in their respective property markets.

On the mainland, these included measures to increase cash sums that lenders must set aside as reserves, as well as a clampdown on banks extending mortgages to borrowers who already own two properties.

In Hong Kong, they included a jump in the downpayment required for deals above HK$12 million (S$2.1 million) from 30 per cent to 40 per cent, and a move to increase land supply for developments.

Even the exuberance on the local property market appears to be tempered by caution among developers in their recent bids at land auctions.

DMG & Partners analyst Brandon Lee noted in a report yesterday that in the recent bidding exercise for a Yishun condo site, only the top bid was aggressive.

He said the other bids were all below expectations - a sign of developers' wariness over potential oversupply as the Government releases more residential land.

Still, despite the angst over real estate counters, property giants with names recognised among international fund managers are doing fairly well.

They have fallen by a smaller margin from the record-high levels of 2007, compared with smaller developers.

For instance, City Developments has fallen 34 per cent since the record highs while CapitaLand is down 44 per cent.

But among smaller developers, Wheelock Properties and Allgreen Properties have slumped about 50 per cent, while boutique developer SC Global has plunged by 53 per cent.

In any case, future movements of counters are likely to be dictated by global considerations.

Poor existing home sales in the United States last month sent Wall Street into a funk yesterday, as the data raised fears of a return to recession in the world's No. 1 economy.

But there are pockets of optimism among investors that the worst is over for the global property market. In a report last week, Henderson Global Investors said it believed the global real estate market is in the very early stages of a recovery and 'property share prices are currently at fair value, or in the fundamental context, considered to be a little cheap'.

It noted that in Asia, sentiment varies from Japan, where the property sector is in the doldrums, to China, where investors are afraid of policy tightening to deflate a potential real estate bubble.

Henderson's advice to investors is to pick property stocks carefully as investors are not rushing into them, partly because of the general uncertainties worldwide, and the painful memory of the recent US property bubble.

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