Property Stocks On Downward Slope

Source : The Business Times, October 4, 2008

Stock prices will continue to fall as home prices continue to decline for the rest of this year and in 2009, analysts say.

PROPERTY stocks took a beating yesterday following news that private home prices fell for the first time in 41/2 years, officially marking the end of the boom. And the worst is not over yet - the share prices of Singapore- listed developers can be expected to continue to slide, analysts say.




















The FTSE Real Estate Index shed 10.9 points, or 2.4 per cent, yesterday to close at a 52-week low of 451.7. The index has lost 48.5 per cent since the start of the year. In contrast, the Straits Times Index has lost 33.7 per cent so far in 2008.

Singapore's three biggest developers by market capitalisation all saw their stock prices fall yesterday. CapitaLand dropped 10 cents to close at $2.94, City Developments shed 36 cents to end at $8.01 and Keppel Land declined 14 cents to $2.61.

But property stocks have not bottomed out, analysts reckon. 'We are not there yet,' said DMG & Partners analyst Brandon Lee. 'A lot of the news has been factored in (into the share prices), but we still have some way to go.'

CIMB analyst Donald Chua agrees. 'We are not really seeing the full impact yet and it's a bit too early to call the bottom.' But property stocks are looking cheaper and more attractive than two or three years ago, he said.

The latest quarterly flash estimate released by the Urban Redevelopment Authority showed the overall price index for private residential property fell 1.8 per cent in the third quarter, after a marginal 0.2 per cent rise in Q2.

The market had been expecting physical property prices to fall since the start of this year, though it took the index three quarters to get there. 'The index decrease was expected and anticipated by the market, especially as many commentaries have evoked anecdotal evidence based on selected transactions in certain projects to comment that prices have already fallen by up to double- digit percentages,' said DBS Vickers analyst Adrian Chua.

But that did not stop investors selling down developer stocks yesterday in response to the latest negative news.

Stock prices will continue to fall as home prices continue to decline for the rest of this year and in 2009, analysts say. 'Overall, we are predicting further mid single-digit price declines for Q4 2008, before dropping 3-5 per cent on a year-to-date comparison,' said DMG's Mr Lee.

'With macro-economic growth not expected to recover in the near term, we believe the price correction would continue through 2009, falling between 8-15 per cent, with the CCR (core central region) bearing the brunt of the decline.'

DBS Vickers' Mr Chua also expects single-digit price drops for private homes for the whole of 2008 and believes the price downtrend should continue into 2009. High-end properties should bear the brunt of any price falls, while the mass-market segment should be relatively resilient, he said.

Investors are now holding off buying homes in anticipation of prices falling further, and the poor demand is affecting market sentiment on property counters.

Merrill Lynch analysts wrote in a report: 'We expect the price index to turn more negative in the upcoming quarters given weakening market conditions.'

There is also the risk that tighter credit could lead to higher interest rates, which would increase the cost of holding on to properties and potentially lead to a larger number of 'fire sales' as more projects approach completion and property investors start to do their sums. Some buyers could be waiting to snap up distressed assets on the secondary market, contributing to lower sales for developers.

All these mean that developers are selling very few private homes. For example, only about 60 were sold in the primary market in the first two weeks of September, said DMG's Mr Lee.

Home prices need to fall further before demand could go in the opposite direction, and property counters recover.