Worries trigger property stock sell-offs

Published 20 June 2011
The Business Times
By Uma Shankari

SINGAPORE-listed property stocks, which have taken a beating since the start of this year, are now trading at up to 50 per cent below their revalued net asset values (RNAVs) – a level of discounts that was last seen in 2009 during the recession.

‘Sentiment towards property stocks have been dampened by the spate of uncertainties in the sector and property stocks are now trading at an average of over 30 per cent discount to RNAVs – which is back to the 2009 levels,’ said DBS Vickers analyst Lock Mun Yee. 

Eight selected property stocks that DBS Vickers tracks are trading at discounts of 17 per cent to 50 per cent from their RNAVs. 

Property stocks have been punished over the last few months as investors pulled back on policy risk and oversupply concerns.

In addition, developers with significant exposure to the Chinese market were hit further last week as data from China raised concerns that a slowdown in the world’s second-largest economy could lead to easing demand for homes.

According to DBS Vickers, CapitaLand – Singapore’s largest property group by market capitalisation – has shed 26 per cent of its value so far in 2011 and is now trading at a discount of 49 per cent to its RNAV.

CapitaLand’s retail unit CapitaMalls Asia was also punished for its China exposure. The stock has shed 27 per cent since the start of the year and is now trading at a 38 per cent discount to its RNAV.

City Developments, which has shed 20 per cent this year, is trading at a 17 per cent discount to RNAV. Keppel Land, which has lost 29 per cent so far in 2011, is now trading at a 40 per cent discount to RNAV.

By contrast, the benchmark Straits Times Index has lost just 6 per cent so far this year.

Analysts attribute the sell-off of property stocks mainly to speculation that another round of demand-side measures to cool the property market could be on the way.

‘The drip feeding of policy measures continues to dominate investor thinking,’ said Goldman Sachs in a June 9 report.

‘In particular, the expectation of an additional round of housing measures has been a further drag on the share prices of developers. ‘

But much of the policy risk has already been priced into real estate stocks, analysts noted.

OCBC Investment Research analyst Eli Lee pointed out that the share prices of major property developers (such as City Developments and CapitaLand) have fallen significantly year to date, despite continued increases in home prices, as investors braced for potentially lower prices ahead.

For the sector as a whole, home price dips have mostly been priced in, given significant forward visibility, Mr Lee added.

Since the market has already factored in possible headwinds in both Singapore and China, there could be good deals for the discerning investor.

Said DBS’s Ms Lock: ‘Stock prices appear to have factored in much of the uncertainties presently but re-rating catalysts in the near term may be modest. We would adopt a selective bottom up approach to stock picking.’

But having said that, it is important for investors to keep the following factors in mind.

Singapore has a new minister in charge of housing in National Development Minister Khaw Boon Wan. It is something that is keeping the market on edge, and unsure of how far his ministry will go to moderate demand for private homes.

Goldman Sachs pointed out in its report that the widening price gap between private mass market homes and public housing, or Housing Development Board (HDB) flats, is of particular concern.

‘The widening of the price gap between the private mass and HDB prices to about $490psf, a record, is turning into an insurmountable hurdle to upgrading aspirations, suggesting the government has little choice but to also moderate mass-end prices,’ said the firm in its report.

In addition, the long overdue review of the HDB household income ceiling is likely to shrink demand for private homes.

The income ceiling is widely expected to rise from $8,000 to $10,000.

Another big question mark hangs over developers’ exposure to China. The China situation could turn out to be a lot worse than expected.

But it could also turn out to a lot better. One point worth nothing is that China is not the United States – China’s slowdown in May was deliberately set off by government measures to cool the property market and prevent home prices from surging out of control.

In the event that the slowdown becomes sharper than anticipated, the Chinese authorities could always relook their policies.