Brokers' Take: Steep valuation discount of Singapore property plays 'too good to ignore', says DBS

WITH the latest property cooling measures, Singapore property players are currently trading at steep discounts, said DBS Group Research, which recommends that investors accumulate on the price weakness, because it believes that the market has already priced in the measures.

In a research note on Wednesday (Jan 5), real estate manager CapitaLand Investment 9CI, and property developers City Developments (CDL) C09 and Ho Bee Land H13 w : H13 0%ere named as the research house's preferred picks for the sector.

Analysts Derek Tan and Rachel Tan said property plays here offer deep value, given that the FTSE ST Real Estate Holding and Development Index (FSTREH) currently trades at a multi-year low of 0.55 times price to net asset value (NAV) - at 1 standard deviation below its 5-year mean.

It has been lower than this only during the recessions of 2009 and 2020.

The analysts said: "With most developers' price to NAV multiples even below the trough levels seen in past cooling measures, we believe that most negatives are priced in and do not see further downsides."

While property developers experienced negative knee-jerk price reactions to the announcement of the cooling measures, the 2 analysts noted that the sector's overall performance was "fairly muted this time round", with prices falling within a range of between 1 and 5 per cent.

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The pair also said they believe strong pre-sale trends are likely to shield the developers they cover from potential risks. They noted that most of the developers covered by the research house had pre-sold roughly three-quarters their inventory as at the end of last year.

CDL, UOL Group and Wing Tai all achieved pre-sales of about 80 to 95 per cent of their inventories; Guocoland's core central region-focused projects hit close to 67 per cent pre-sales within 2 years of launch.

"So even if we see weakness in the market, the actual impact on developers will likely be marginal for most," they said.

Many developers are also looking to pivot towards building a recurring income base of commercial and hospitality assets to ride the rebound and drive stronger cash flows and NAVs in 2022, they added.

Still, while valuations are attractive, the DBS analysts noted that the slowing property market - in terms of both volume and prices - may cap the sector's overall performance ahead.

Therefore, they believe the sector is likely to trade in line with the Straits Times Index in the meantime.