Singapore Property Stocks to Extend 2012 Rally: Southeast Asia

Singapore Property Stocks
CapitaMalls climbed 73 percent this year. Photographer: Munshi Ahmed/Bloomberg

Singapore property stocks, the best performers on the benchmark Straits Times Index this year, are set to extend their gains in 2013 on higher demand for homes, offices and hotels, according to UOB-Kay Hian Pte.

Six out of top 10 gainers on the 30-member gauge are real estate-related stocks, led by CapitaLand Ltd., Southeast Asia’s biggest developer, and its retail property unit CapitaMalls Asia Ltd. The benchmark’s property index, which tracks 40 developers, gained 48 percent this year, its best performance since 2009.

“There’s some more room for outperformance,” said Vijay Natarajan, a Singapore-based analyst at UOB-Kay Hian Pte. Gains will be driven by “the disconnect over the last two years between the physical market and the shares. As property prices remained firm and there was genuine demand from the low interest rate environment, investors started buying property stocks again,” he said.

Demand for homes and offices in the island state of 5.3 million people boosted home prices to a record in the third quarter. Singapore’s real estate investment trusts that invest in offices and retail spaces posted the best returns globally this year, driven by acquisitions and higher rents.

Record Prices

Singapore’s property stocks, including REITs, have a market capitalization of $126 billion and make up 22 percent of the benchmark Straits Times index, according to a Dec. 13 report by Bank of America Corp.’s Merrill Lynch unit. The city’s private residential price index rose 0.6 percent in the three months ended Sept. 30, while new home sales are expected to reach a record 22,000 this year, according to Jones Lang LaSalle Inc.

Gains in share prices this year have also been driven by acquisitions and privatization bids. Overseas Union Enterprise Ltd. made a $10.7 billion bid for Singapore property developer and drinks maker Fraser & Neave Ltd., while SC Global Developments Ltd.’s Chief Executive Officer Simon Cheong offered to take the luxury home developer company private.

Fraser, whose property business is its biggest sales contributor, jumped 56 percent this year, and SC Global shares surged 84 percent, making it the third-best performer on the Singapore property index.

“We have also got the corporate themes led by the F&N saga and more recently by the SC Global privatization, so that’s added another layer of buoyancy to the sector,” said Chong Yoon-Chou, Singapore-based investment director at Aberdeen Asset Management Asia Ltd., with $80 billion in Asian assets including shares of City Developments Ltd. and Wheelock Properties Ltd.

Top Performers

CapitaMalls climbed 72 percent this year, while its parent CapitaLand advanced 69 percent. The Straits Times Index increased 20 percent.

Singapore’s record home prices prompted Finance Minister Tharman Shanmugaratnam to say in October that the real estate market may get “bubbly.” The government won’t allow home prices to outstrip gains in incomes, he said.

Home sales in the city may fall as much as 27 percent in 2013 after climbing to a record this year as six rounds of housing curbs by the government crimps demand, according to Jones Lang LaSalle. Office rents in the business district declined in the fourth quarter and vacancy rates will climb next year in some prime areas, according to Cushman & Wakefield Inc.

The country was named the eighth most-expensive Asian location for international assignees, according to ECA International in June, down from sixth a year earlier as costs in Chinese cities including Shanghai and Beijing increased.

‘Phenomenal Year’

Developers will continue to benefit next year as demand for real estate increases and the rising popularity of the island state as a destination for expatriates, said UOB-Kay Hian’s Natarajan said. Investment plans by developers in markets including China will also help boost returns, he said, adding that he recommends stocks including Ho Bee Investment Ltd., Wing Tai Holdings Ltd. and CapitaLand.

Wing Tai, the top performer this year on the Singapore property index, is trading at 66 percent of its book value, according to data compiled by Bloomberg. Ho Bee trades at 81 percent to its book value, the data showed.

“This year has been a phenomenal year for property stocks,” Natarajan said. “We like some midcaps which are trading at a steep discount to book value, so some catch up will take place.”

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