The Singapore property market has seen a slowdown in recent years, and it is expected that local private home prices could fall by about 3 per cent next year. A number of analysts surveyed generally agreed that despite the attractive valuations of property developers' stocks, there is a lack of positive factors in the near term.
In recent trading, shares of City Development (CDL) fell 2.52 per cent and shares of UOB Group (UOL) were down 2.28 per cent, contrary to the overall market trend.
Shares of City Development were cut to $5.7 from $8.2, and shares of Huaye Group were cut to $5.1 from $7.3. Other property stocks such as CapitaLand Investment and GuocoLand also saw their share prices fall.
The report noted that Singapore house prices are about to decline after seven consecutive years of gains. Reduced profits from project development, higher interest expenses and the impact of index rebalancing have resulted in valuation discounts for property developers that are set to persist.
Multiple factors contributing to the decline in property demand include high stamp duty discouraging foreign buyers, fewer HDB upgraders buying private homes, and investors slowing down due to a weak rental market.
On the supply side, the government has added more land supply to increase market availability. Land supply for the whole of this year reached its highest level in nearly a decade, with prices of land for sale showing signs of slowing down.
Compared with last year, land prices in the same area have dropped by about 10 per cent. With the launch of these land projects next year, it is expected that the prices of private residential flats may be adjusted downwards, thus pulling down the overall price index level.
According to the forecast, local private residential prices may drop by about 3 per cent next year, implying that the local property market has entered a downward cycle.
The report also noted that the market capitalisation of local property developers has halved over the past seven years, with shares currently trading at a level 60 per cent below the revalued net asset value (RNAV).
This level is equivalent to valuation levels during a major crisis, according to the report. Regulatory changes have increased property development risk and reduced returns, not only as a result of the slowdown in house price increases this year, but also in relation to evolving regulatory policy.
In the first nine months of the year, new private home sales fell by 16.9% year-on-year and the market was weakened by property cooling measures and high mortgage rates.
Despite the unfavourable factors faced by real estate stocks, their performance still depends on a company's financial position and expectations of future performance. If a company has taken effective cost-cutting and efficiency-enhancing measures and has attractive property projects, it is still likely to perform well in the market.
In addition, government intervention may also have a positive impact on the market, for example through the introduction of stimulus measures to facilitate the recovery of the property market.
