Equity Research
6 April 2021
1
Sector update
Singapore Residential Sector
– When good news isn’t all
cheers
Singapore | Real Estate
Research Team
Investment summary
Singapore’s private home prices rose 2.9% on a quarter-on-quarter (QoQ) basis in 1Q21, based on URA’s
recent flash estimates. This is tracking above the street’s expectations, and was the fourth consecutive
quarter in which private home price growth accelerated from the preceding quarter. On the other hand,
the HDB Resale Price Index showed a 2.8% QoQ increase in 1Q21, based on flash estimates. This mirrored the
robust performance of the private market. Given the buoyant performance of the physical residential market
in Singapore, this has undoubtedly ignited concerns over the risks of potential property cooling measures
being introduced by the government. Although we acknowledge that such risks have increased, we believe
it is possible that the government might continue to adopt a wait and see approach and await the release
of 2Q21 data points. The FTSE ST Real Estate Holdings and Development Index (FSTREH) has delivered total
returns of 14.1% year-to-date (YTD), slightly outperforming the Straits Times Index’s 13.3% return. In terms of
valuation, the FSTREH is now trading at a forward price-to-book (P/B) ratio of 0.55x (versus 0.48x at the start of
the year). This is still 0.9 standard deviations (s.d.) below the 10-year average (0.68x). While valuations remain
cheap and we expect Singapore developers to continue to be a beneficiary of the global rotation to value
and cyclical sectors given the re-opening and normalisation in economic activities, we grow more cautious
on rising policy risks. CapitaLand Limited (CAPL SP) was our number one Singapore developer pick at the start
of the year. However, given its strong share price performance after its proposed restructuring, our rating has
changed to ‘Hold’. We maintain our ‘Buy’ ratings on UOL Group (UOL SP) and City Developments Limited (CIT
SP) although potential upside is now only slightly above 10% given their re-rating over the past five months
(since the Pfizer and BioNTech vaccination news first broke).
• 1Q21 flash URA Private Residential Property Price Index rose 2.9% QoQ; led by Rest of Central Region
• Price appreciation undoubtedly ignites concerns over potential property cooling measures, but wait
and see approach still likely at this juncture
• Demand has been driven largely by owner-occupiers rather than speculation
Private home prices grew 2.9% QoQ in 1Q21 based on URA flash
estimates
Singapore’s private home prices rose 2.9% on a quarter-on-quarter (QoQ) basis in 1Q21 (4Q20: +2.1% QoQ),
based on URA’s recent flash estimates. This is tracking above the street’s expectations, and was the fourth
consecutive quarter in which private home price growth accelerated from the preceding quarter. Both the
landed and non-landed property segments saw positive price growth of 5.6% and 2.1%, respectively. Within
the non-landed segment, private residential prices in the Rest of Central Region (RCR) performed the best,
appreciating 6.1%, followed by the Outside Central Region (OCR), which rose 0.9%. The Core Central Region
(CCR) was the only sub-market which saw a decline of 0.3%. Cumulatively, the URA Private Residential
Property Price Index (PPI) has increased by 6.2% since its last trough in 1Q20. We raise our 2021 Singapore
private home price growth forecast from 2-4% to 4-6%.
Equity Research
6 April 2021
2
Exhibit 1: Price trend by segment for private non-landed properties (flash estimates for
1Q21)
Source: URA, Internal estimates
HDB Resale Price Index rose 2.8% QoQ in 1Q21
The HDB Resale Price Index showed a 2.8% QoQ increase in 1Q21, based on flash estimates. This mirrored the
robust performance of the private market as highlighted earlier, though this was a tad softer than the 3.1%
QoQ increase registered in 4Q20. As it stands, the premium between the URA Private Residential PPI and the
HDB Resale Price Index increased marginally from 13.7% in 4Q20 to 13.8% in 1Q21. To put things in perspective,
the last peak of the gap between private housing and public resale housing in Singapore was 16.8% back in
4Q19.
Exhibit 2: Trend between URA Private Residential Price Index and HDB Resale Price Index
(flash estimate for 1Q21)
Source: URA, Internal estimates
133.2 (-0.3% from end-2020
185.3 (+0.2% from end-
2020)
170.4 (+6.1% from end-
2020)
40
60
80
100
120
140
160
180
200
Mar 2002
Sep 2004
Mar 2007
Sep 2009
Mar 2012
Sep 2014
Mar 2017
Sep 2019
CCR
OCR
RCR
161.6
142
13.8%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
80
90
100
110
120
130
140
150
160
170
Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Mar 2019 Mar 2020 Mar 2021
URA Private Residential Property Price Index
HDB Resale Price Index
Premium of URA private PPI to HDB Resale Price Index (RHS)
Equity Research
6 April 2021
3
Doing a reality check: risks of potential property cooling measures
have undoubtedly increased
Given the buoyant performance of the physical residential market in Singapore, this has undoubtedly ignited
concerns over the risks of potential property cooling measures being introduced by the government. We
note that there was a cumulative 9.1% increase in the URA Private Residential PPI from 2Q17 (trough then) up
till the last round of major cooling measure in Jul 2018. Furthermore, private home prices had appreciated
above 3% for two consecutive quarters (1Q18: +3.9% and 2Q18: +3.4%) before the government stepped in.
Currently, we have not exceeded the 3% level, and as mentioned earlier, the cumulative price growth from
the last trough was 6.2% (as at 1Q21).
Another main difference between 2018 and now can be seen from the profile of the homebuyer. Based on
data from the Monetary Authority of Singapore (MAS), the growth in new housing loans limits granted has
been driven largely by owner-occupied property, which grew 25% YoY in 4Q20. On the other hand, new
housing loans for investment property fell 10% YoY, such that owner-occupied property loans formed 83% of
total new housing loans limits granted. On the contrary, new housing loans for investment property had grown
faster than owner-occupier property loans from 3Q17 to 1Q18, and the latter contributed 78% of total new
housing loans limits granted in 2Q18.
Hence, although we acknowledge that the risks of property cooling measures have increased, we believe it
is possible that the government might continue to adopt a wait and see approach and await the release of
2Q21 data points.
Exhibit 3: Percentage YoY change in new housing loans limits granted and proportion of
owner-occupied property loans
Source: MAS, Internal estimates
Singapore developers a beneficiary of rotation to cyclical trade,
though policy risks remain an overhang
The FTSE ST Real Estate Holdings and Development Index (FSTREH) has delivered total returns of 14.1% year-
to-date (YTD), slightly outperforming the Straits Times Index’s 13.3% return. In terms of valuation, the FSTREH is
now trading at a forward price-to-book (P/B) ratio of 0.55x (versus 0.48x at the start of the year). This is still 0.9
standard deviations (s.d.) below the 10-year average (0.68x). While valuations remain cheap and we expect
Singapore developers to continue to be a beneficiary of the global rotation to value and cyclical sectors
given the re-opening and normalisation in economic activities, we grow more cautious on rising policy risks.
25%
82%
-10%
83%
65%
70%
75%
80%
85%
-80%
-40%
0%
40%
80%
120%
1Q12
1Q13
1Q14
1Q15
1Q16
1Q17
1Q18
1Q19
1Q20
Owner-occupier
Investment Property
Owner-Occupied Property Loans as % New Loans (RHS)
Equity Research
6 April 2021
4
CapitaLand Limited (CAPL SP) was our number one Singapore developer pick at the start of the year.
However, given its strong share price performance after its proposed restructuring, our rating has changed
to ‘Hold’. We maintain our ‘Buy’ ratings on UOL Group (UOL SP) and City Developments Limited (CIT SP)
although potential upside is now only slightly above 10% given their re-rating over the past five months (since
the Pfizer and BioNTech vaccination news first broke).
Exhibit 4: Forward P/B trend of FSTREH
Source: Bloomberg, Internal estimates
Exhibit 5: Valuation metrics of major Singapore-listed developers
Company
Share
price
(SGD)
FY20F
P/B
FY21F
P/B
RNAV/
share
(SGD)
P/RNAV
(SGD)
Discount
to RNAV
Fair
Value
(SGD)
Discount to
RNAV
applied
Potential
Upside Rating
CapitaLand Limited
3.79
0.80
0.76
4.74
0.80
20.0%
4.03
15%
6.3% HOLD
City Developments
8.24
0.70
0.68
14.03
0.59
41.3%
9.12
35%
10.7% BUY
UOL Group Limited
7.98
0.64
0.61
12.74
0.63
37.3%
8.91
30%
11.7% BUY
Source: Refinitiv, internal estimates, as at 5 Apr 2021 closing prices
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
Apr 2011
Apr 2012
Apr 2013
Apr 2014
Apr 2015
Apr 2016
Apr 2017
Apr 2018
Apr 2019
Apr 2020
Apr 2021
(x)
Forward P/B ratio
10-Year Average = 0.68x
+1 SD = 0.82x
-1 SD = 0.54x
+2 SD = 0.96x
-2 SD = 0.4x
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