City Developments to ride on Singapore's residential sector's upturn

Singapore property prices fall
Representational image Reuters

Property developer City Developments Ltd is poised to reap benefits from the rosy outlook of Singapore's residential sector.

Citing flash estimates from the Urban Redevelopment Authority, OCBC Investment Research analysts Andy Wong Teck Ching and Joseph Ng projected City Developments to benefit from stronger home sales at their launch pipeline ahead, including New Futura and the 861-unit condominium project at Tampines Ave 10. This positive expectation is due to the hopeful signs of recovery seen in recent housing figures.

The two analysts said Singapore's private residential price index recorded an overall growth of 0.7 percent quarter-on-quarter during 4Q17, with prices rising across all three sub-segments.

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In the Core Central Region, prices jumped by 1.6 percent, extending the 0.1 percent in the previous quarter. Prices in the mid-tier segment or in the Rest of Central Region saw an increase of 0.6 percent. The mass market segment in the Outside Central Region recorded an upward price movement of 0.8% in the quarter.

The analysts said that over 2017, overall prices have increased by one percent, a significant improvement from last year's three percent decline.

"We believe the fundamental picture is constructive and see the Singapore residential sector to be in the early stages of a sustained upturn," the two said.

They added, "We expect home prices to rally 3% - 8% in 2018, which will be supported by a recovery in housing rents which are forecasted to increase 5% - 10%, a neutral legislative stance from the authorities and a buoyant en-bloc market."

And while rising cash rates will partially offset fundamental tailwinds, the two reckon that the overall impact will be limited, as domestic mortgage rates are expected to only increase by 100 to 150 basis points from now to end 2020.

Meanwhile, the two said City Developments' revised GBP 6.20 per share offer for its listed hotel subsidiary M&C could be a potential positive catalyst for its share price.