[caption id="attachment_2322" align="alignright" width="216" caption="Residential Price Index by Type"][/caption] Main issues

1. Weak sector outlook
2. SOTP valuation is below current price

I have been very bearish on property for quite a while, and this latest hotstocksnot coverage shows that I have not lost this pessimism over this sector yet. My recent views over Singapore property are well-documented in my Trendspotting blog article in February titled "Continued weakness in Singapore residential housing". In it I outlined the liquidity situation, supply-demand dynamics and valuation comparison to historical prices and concluded that private residential demand plus prices will remain weak through the next 1-2 years. My views sector-wise have not changed. Though global liquidity conditions might have improved, my understanding is that local banks are only lending out based on 60% of home value, while unfavourable supply-demand conditions will not resolve themselves so fast. There is talk now that HDB prices will be next to fall; that removes a price support mechanism for mass market private residential housing, erstwhile the strongest of all private housing (together with old-money landed housing). There are three acknowledged property giants in Singapore: Capitaland, City Developments and Keppel Land. Of these, City Developments is generally regarded as having the best acumen and being the most prudent. In particular, it is known for its prudent accounting policy, where it does not revalue (upwards) the valuation of the property landbank on its books, unlike most other property developers. This is why alone among the big developers, City Developments is trading above its NTA/share. However, a rough SOTP (sum of the parts) valuation of its various segments shows that at the current price, there is little bargain to be had, especially when one surveys the post-Lehman wreckage on the market (even after the recent 25-30% market rally). In the most recent FY, the Property Development division of CDL contributed ~55% of the profits, the Hotels division (through 54%-owned Millenium & Copthorne) accounted for ~30% and the balance was contributed by the Investment Properties division. These are the three main arms of CDL and my SOTP is based on a balance sheet assessment along these three lines. First, the Property Development division, for which CDL is most well-known for. This is held at $2.9B on CDL's FY08 balance sheet. I would like to divide its development properties into two time periods based on their time of acquisition: pre-2006 and post-2006. A look at the URA price index below illustrates the reason for my division: Read more...