SINGAPORE (May 30): Maybank Kim Eng Research is turning positive on Singapore’s property developers with expectations of a potential rebound in property prices, even without further policy easing.

UOL Group remains Maybank’s top “buy” pick with a target price of S$9.05, and has been deemed the best proxy for a price rebound in Singapore.

On the other hand, the research house has upgraded its calls on Cambridge Industrial Trust (CIT) and Ho Bee Land to “buys” from “holds”, while also raising their target price estimates to S$12.05 and S$3 respectively.

“Strong home-buying interest could drive a sharp decline in unsold stock and allow developers to raise prices… And while the occupier market remains soft, keen interest in commercial assets has led to record prices in recent transactions. We believe developers will increasingly be valued for their investment properties,” explains analyst Derrick Heng in a Monday report.  

Noting stronger-than-expected take-up at property launches over recent months, Heng thinks home buying interest will continue given ample liquidity, improving affordability, and buoyant sentiment.

As such, the analyst has lifted his expectations from flat home prices to 3-4% annual increases for the next three years, as well as raised commercial property valuations after lowering cap-rate assumptions by 0-50 bps to more accurately reflect the properties’ realisable value in the market today.

A mild rate upcycle will still be “manageable”, he adds.

“While a rate-hike cycle has started, our Economics team expects a mild uptick in 3MSIBOR to 1.30%/1.60% by end-2017/18E. We believe this small 30bp increase will be manageable and should not lead to a sharp fall in property prices,” says Heng.

“Furthermore, home buyers have already been stress-tested for normalised interest rates since the implementation of macro prudential measures such as a total debt-servicing ratio from 2013. Interestingly, unlike the marginal uptick in 3MSIBOR, Singapore’s 10-year bond yields have corrected by over 30bps YTD to 2.1%. This has arguably enhanced the attractiveness of property yields,” concludes the analyst.  

As at 4.42pm, shares of UOL Group and Ho Bee Land are trading 1 and 4 Singapore cents lower at S$6.89 and S$2.32 respectively. CIT is up by 0.9% at 57 Singapore cents. —

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