Property Analysts forecasts on Property Land Prices

Favourable real estate share markets have led to booming business for property developers, leading to increased pressure for developers to keep up to shareholder expectation with some solid sales figures.

According to FTSE Straits Times Real Estate Holding and Development Index have risen 26.8% last year, a stark jump from previous years. Firms that are able to push out several new launches to ride the bullish market will be able to benefit from this market upswing, especially companies which have built up their land area before last year’s spike. This is a clear indication that the property market is in good health

Property analysts from JPMorgan foresees a re-rating of some of the property stocks, hinting even at potentially at the current market situation to be the start of a 3-year upswing. Their analysis of major land tenders in 2017 suggests that prices should rise between 6 to 13 % over the next one to two years, allowing developers to reap profit margins of between 5% to 10%.

Though views differ from one analyst to others, what is apparent is that there is a larger margin of safety for property developers that purchased large land areas earlier at lower prices, given the ambiguity over whether buyers will buy at higher prices.

It was noted by Mr Vijay Natarajan, RHB Research Institute’s property and Reits analyst that developers have paid a high price due to the apparent competition for land lately. Expecting only a 3 to 7% rise in property prices for 2018.

Developers have to pay additional buyer’s stamp duty (ABSD) on the land cost with interest if they do not build, sell and complete a project within five years, and banks area already imposing constrains on home loan packages, reducing affordability for buyers, and generally dampening the market.

The overly optimistic land bids will limit developers’ profit margins and raise the risk of more supply-side cooling measures from the Government, Mr Natarajan said.

City Developments (CDL) and UOL Group are seen by most analysts as among the best large-cap proxies to ride the impending market ascent given their sizeable residential land bank and decent exposure to the local office sector, which is also on the mend.

RHB’s Mr Natarajan favours the small-mid cap space where stocks are still trading at relatively higher discounts of 30 to 50 per cent with Apac Reality the top pick. He expects transaction numbers to remain high irrespective of price movements as developers are bound by the 5 years to launch and sell their units. He also views that if property prices could climb more than 5 percent, there should be another rally in large-cap developers.

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