The SGX Real Estate Index, a benchmark for Singapore’s Real Estate Sector, has returned 19.5% in the YTD. Domestic private home prices have shown signs of stabilisation in recent months, with a pick-up in primary transaction volumes.  

There are 104 Real Estate companies (diverse across assets) with a combined market capitalisation of almost S$190 billion listed on the SGX. Some key drivers for the sector include population growth, government cooling measures, land supply and interest rates.

Post the YTD rally, sector valuations remain below their long-term historical average. Singapore property developer stocks are trading at PB ratio of 0.75x vs their long-term average of 0.83x.

2Q17 Marks Smallest Quarterly Private Home Price Decline Since 4Q13

Earlier this week, the Urban Redevelopment Authority (URA) released the flash estimate of Singapore’s private residential property price index for 2Q17. The index declined 0.3% QoQ to 136.3. Despite being the 15th consecutive quarter of sequential price decline, 2Q17 marks the smallest quarterly price decline since 4Q13.

Singapore’s residential transaction volumes have also seen a pick-up in recent months. According to URA, March primary private home sales excluding executive condominiums increased 111.2% YoY to reach 1,780 units, the highest level in four years.

In March this year, the Singapore government also announced calibrated adjustments to existing property cooling measures, resulting in Singapore property developers stock prices surging by as much as 7% intra-day on the day of the announcement.

In the year-to-date, the benchmark for the Sector, SGX Real Estate Index, posted a total return of 19.5%, outperforming the broader STI’s 14.6%.

DBS Vickers Securities remains upbeat on the Singapore property market on positive sentiment, continued support from the government (at current levels as they manage and monitor the property market), prolonged low interest rates and potential positive spillover impact from cooling measures implemented within the region.

Real Estate Sector Posted Strong Returns in the Year To Date

Source: Bloomberg (data as of 5 July 2017)

Sector Valuations Remain Below Long-Term Historical Average Despite Rally

Post the year-to-date rally, Singapore property developers stocks are trading at 0.75x PB, below the longer term average of 0.83x (see chart below). As seen in the chart, Singapore property developers traded at +1 standard deviation above their long-term average in 2010, before the government’s introduction of many cooling measures to deter speculative demand.

Historical PB Ratios of FTSE ST Real Estate Holdings and Development Index

Source: Bloomberg (data as of 5 July 2017)

Note: FTSE ST Real Estate Holdings and Development Index was used as it captures a longer trading history.

Key Drivers of the Real Estate Sector

Population growth and rising affluenceSingapore’s population (current at 5.6 million) is expected to hit 6.9 million by 2030 and an increase in population size will boost housing needs. A better-educated population and more dual-income married couples may potentially result in higher rates of home ownership as affordability increases.

Government Cooling MeasuresProperty cooling measures imposed by the government over the years such as stamp duties and loan restrictions have helped stabilise increasing demand over the years. Some major measures were the raising of seller stamp duties (SSD) and additional buyer stamp duties (ABSD) in 2011, and further ABSD changes and the introduction of a total debt servicing ratio (TDSR) in 2013.

Land supplyGovernment Land Sales (GLS) have been declining since 2H2012, resulting in a depletion of land banks of Singapore property developers over the last few years and a reduction of GLS for bidding.

Interest ratesHigher interest rates result in higher borrowing costs for home owners. Consensus expects three rate hikes from the Federal Reserve in 2017, which could be a potential headwind for physical real estate demand and REITs.

For more, please refer to the SGX Real Estate sector presentation.

SGX’s Real Estate Sector

SGX has 104 companies categorised within the Real Estate Sector by the Global Industry Classification Standard (GICS®) with a combined market capitalisation of almost S$190 billion. The sector is diverse with property developers and Real Estate Investment Trusts (REITs) across a variety of property assets from hospitality, industrial, office to retail.

Singapore’s REIT Sector is made up of 32 REITs and six Stapled Trusts with a combined market capitalisation of S$79 billion, one of the largest in Asia excluding Japan. Together, the 38 trusts have a market capitalisation weighted average total return of 16.2% in the year to date and distribute an average dividend yield of 6.4% (one of the highest globally). Over 70% of the trusts own offshore assets across Asia Pacific, South Asia & Europe.

The 10 largest constituents of the SGX Real Estate Index are listed below, sorted by index weighting. Click on each stock to visit its profile page on SGX StockFacts.

Name SGX Code Weight % Market Cap S$B Price S$ Total Return YTD % Total Return 1 Yr % P/B ROE % Dvd Ind Yld % Gearing %*
Hongkong Land Hldgs H78 10.1 24.1 10.337 15.0 26.9 0.6 11.2 2.7 12.5
Global Logistic Properties MC0 9.5 13.2 2.850 29.5 62.5 1.1 9.1 2.1 42.4
CapitaLand C31 9.0 14.9 3.540 20.4 21.6 0.8 7.7 2.8 61.8
Ascendas REIT A17U 6.7 7.5 2.600 18.2 12.2 1.3 7.4 6.8 33.4
CapitaLand Mall Trust C38U 5.4 7.0 1.970 7.5 -4.1 1.0 6.9 5.7 32.0
Suntec REIT T82U 4.8 4.9 1.860 16.0 10.7 0.9 4.8 5.4 36.4
City Developments C09 4.8 9.7 10.670 30.3 33.6 1.1 7.1 0.8 49.0
CapitaLand Commercial Trust C61U 4.2 5.0 1.695 18.1 17.9 1.0 5.1 5.4 33.0
UOL Grp U14 4.1 6.2 7.620 29.9 39.9 0.7 3.6 2.0 26.8
Mapletree Commercial Trust N2IU 3.1 4.5 1.590 17.4 16.6 1.1 10.3 5.4 36.4
Average         20.2 23.8 1.0 7.3 3.9 36.4

Source: SGX, Bloomberg & SGX StockFacts (data as of 5 July 2017)

* Calculation of Gearing % was (Total Debt/ Total Asset) for REITs and (Total Debt/ Total Equity) for Developers

Name SGX Code Analyst

Coverage

Buy Hold Sell
Hongkong Land Hldgs H78 15 8 (53.3%) 3 (20.0%) 4 (26.7%)
Global Logistic Properties MC0 11 1 (9.1%) 10 (90.9%) 0
CapitaLand C31 22 17 (77.3%) 5 (22.7%) 0
Ascendas REIT A17U 22 12 (54.5%) 9 (40.9%) 1 (4.5%)
CapitaLand Mall Trust C38U 21 11 (52.4%) 10 (47.6%) 0
Suntec REIT T82U 21 0 15 (71.4%) 6 (28.6%)
City Developments C09 23 16 (69.6%) 6 (26.1%) 1 (4.3%)
CapitaLand Commercial Trust C61U 23 9 (39.1%) 11 (47.8%) 3 (13.0%)
UOL Grp U14 14 11 (78.6%) 2 (14.3%) 1 (7.1%)
Mapletree Commercial Trust N2IU 14 11 (78.6%) 2 (14.3%) 1 (7.1%)

Source: Bloomberg (data as of 5 July 2017)

Did you know?

Over the past 20 years, the market capitalisation of Singapore’s Real Estate Sector has grown five times to almost S$191 billion, with three times as many stocks now making up the sector. During this period, the REIT Sector has been established in Singapore, leveraging off the stable returns generated in the preceding years by the Real Estate Developers and Operators.

SGX currently has  two REIT ETFs – Philip SGX APAC Dividend Leaders REIT ETF and NikkoAM-StraitsTrading Asia ex Japan REIT ETF – which listed on 20 Oct 2016 and 29 Mar 2017 respectively. Both ETFs track indices focused on REITs based in the Asia Pacific region. For more, click here.

Name Stock Code Price Historical Total Return %
Phillip SGX APAC Dividend Leaders REIT ETF (USD) BYI   0.95 1.5
Phillip SGX APAC Dividend Leaders REIT ETF (SGD) BYJ   1.31 1.9
NikkoAM-Straits Trading Asia Ex Japan REIT ETF CFA   1.07 6.3
Average     3.2

Source: SGX, Bloomberg & SGX StockFacts (data as of 5 July 2017)


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