Property Market Seen Growing On A Strong Sing Dollar

Source : The Business Times, April 17, 2008

Fast income growth, falling interest rates will keep the sector buoyant, says report

HERE'S some good news for those feeling down after recent bearish reports on the local property market.

Canadian-based BCA Research this week issued a Buy Singapore Property Stocks report, arguing that a strong Singapore dollar will depress interest rates, which will continue to fuel the property market.

It also pointed to strong income growth and other fundamentals - for instance, the transformation of Singapore's economy and favourable supply-demand dynamics - which it says will continue to underpin the Singapore real estate bull market.

'While real estate prices in Singapore have been rising for a while, the pace of appreciation is unlikely to slow much given the solid fundamentals of this market,' BCA Research argues.

'The bull market in property stocks will resume given the positive backdrop of the real estate sector. The valuations of real estate stocks have become very attractive, based on almost all price ratios. Dividend yields for this sector, at 2.1 per cent, compare extremely favourably with domestic bonds that are yielding 1-2 per cent.

'Property stocks have underperformed the Singapore equity benchmark since early 2007 and it appears a trend reversal is under way.'

In its report, the research house notes that the supply-demand dynamics in Singapore's real estate market are positive and valuations are not overly expensive. The government's measures last year have cooled housing activity somewhat, which has dented the performance of real estate stocks, BCA notes.

'Nevertheless, strong income growth and depressed interest rates suggest that the property market in Singapore will stay buoyant,' it adds.

The report also says that 'when measured against the long-term trend of income per capita, property prices are still in a catch-up phase after a major undershoot in the aftermath of the Asian crisis'.

Housing affordability has not yet deteriorated, thanks to fast income growth and a plunge in interest rates. Rental yields have gone up as rent increases have been outpacing property prices.

'Rising rental yields in the wake of plunging interest rates are not sustainable, as the arbitrage opportunity will be exploited,' says BCA. 'Given the supply-demand dynamics in Singapore's real estate market, a further increase in property prices is the most likely scenario at the moment. Despite the three-year dramatic appreciation in property prices, housing supply has not become excessive.'

According to BCA, the supply of residential and office real estate is far from the level at the peak of the last bubble in 1996. It also says the impact of scrapping the Deferred Payment Scheme in slowing activity in the housing market appears to be waning.

The Singapore economy is also unlikely to weaken substantially during this global growth downturn, as it has become more diversified in recent years.