Clouds clear for property developers

Barely a month ago, developers were still bogged down by worries that persistently strong property data could trigger more government measures to cool the housing market.

But now, these concerns seem to have dissipated quickly, with at least one research house upgrading its rating to “buy” for developer stocks and economists expecting the construction sector to continue its growth momentum after a surprisingly strong showing in the first three months of the year.

In a Monetary Authority of Singapore survey of private sector economists, which was released yesterday, the 21 economists revised upwards their median growth forecast for the construction sector for the full year by almost four-fold, from 1.7 per cent to 6.2 per cent.

The sector grew 7.7 per cent in the first quarter, much higher than the median estimate of 1.1 per cent in the previous survey in March.

DBS economist Irvin Seah said: “The growth came in as a huge surprise and the construction sector remains buoyant with a healthy pipeline of infrastructure projects and residential property developments.”

In a research note on Tuesday, Standard Chartered Equity Research analysts upgraded its rating for developer stocks “as policy overhang lifts, wages rise and nominal home prices hold up”. In particular, it upgraded its rating to “outperform” for CapitaLand and City Development.

CapitaLand shares closed 1.83 per cent down at S$2.68 while City Development shares closed 0.3 per cent higher at S$10.16 yesterday.

According to the StanChart analysts, about one in five developers here expect housing prices to rise going forward, compared to none in the first three months of the year.

They said: “Wages surprised on the upside last year by rising 6.4 per cent. Housing affordability improved in the year as residential prices only rose 6 per cent … We expect the Government to continue to drive income growth.”

They believe that no further cooling measures are on the cards.

“After five rounds of cooling measures, the private residential price index fell 0.1 per cent (in the first quarter) for the first time since 2009. Foreigners buying of private homes fell 78 per cent (in the first quarter). Public housing resale volumes and prices have also moderated,” the StanChart analysts said.

Property analysts TODAY spoke to agreed the Government’s cooling measures have taken hold and further sweeping measures are unlikely, given that property prices are softening.

IPA chief executive officer Ku Swee Yong said the broader risks of homebuyers overborrowing, people dipping into the market for a quick profit, as well as the problem of investors buying additional properties have been addressed.

“The measures have built a rather strong foundation,” he said. Major curbs are unlikely, although “very targeted” measures, such as to deal with shoebox apartments, could still be implemented, he added.

SLP International head of research Nicholas Mak added: “Speculation is down, price growth is down, and there’s a cautious investment climate because of the external economic outlook. If there are any more drastic measures, it could have unintended negative effects.”

Just last month, brokers were advising investors to avoid Singapore-focused residential developers.

But now, there is consensus among analysts that the removal of policy risks, a continued higher supply of land flowing into the market, as well as a healthy outlook on wages and employment could put some glean on developer stocks too.

Yesterday, the Ministry of National Development also announced it will supply 15 Confirmed List sites and 24 Reserve List sites in its Government Land Sales Programme for the second half of this year. This could yield 14,200 new private residential units.

HSR Property Group special adviser Donald Han predicted residential prices will show a downtrend in the flash estimate for the second quarter.

He also pointed out that developers’ bids for land this year have been at “reasonable levels”, which leaves room for profit in the next 12 months.

Source : Today – 2012 Jun 14

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