Look beyond the pessimism, investors urged.
It’s time to stop punishing Singapore’s property developers, according to a report by CIMB.
Although the property market will remain mired in problems this year—particularly weak demand and a significant supply glut—CIMB noted that unjustifiably cheap property stocks might be worth a shot now, after they have declined by 14% since the beginning of the year.
“While we agree that 2016 will be another challenging year for the physical property market, on the back of weak demand and significant supply overhanging the sector, we believe that investors should look beyond this pessimistic scenario. Our base case assumption would be for Singapore to be stable, even though experiencing low growth,” CIMB said.
CIMB added that though there is a significant disconnect between equity and underlying asset values, there is still good interest in buying opportunities in the physical market. This will allow developers to recycle capital through asset sales.
Developers also have different profiles now compared to the most recent cycle, as a number of them have ventured overseas over the past two years. CIMB said that the fruits of these overseas diversifications should be felt more marked on earnings from this year.
“Developers’ valuations are very cheap, given that the sector is trading below the -1s.d. discount to mean. We think much of this pessimism appears to have been largely priced into the stocks,” CIMB noted.
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