Will extremely undervalued property stocks survive a severe stress test?

Here's what will happen if prices crash by 50%.

Property stocks have been among the hardest-hit by the sharp selldown in August. With property counters currently trading near crisis valuations, UOB Kay Hian analysts believe that deep value has emerged among developer stocks.

“Our stress test shows deep value remaining in depressed market conditions. We believe the market has over-discounted the negative prospects,” UOB Kay Hian said in a report.

Even if average selling prices and capital values of domestic properties crash by 50% from their 2013 peak, the report said that average share prices will still provide a 12% upside.

“Our burn-down analysis reveals that deep value still remains. [This] presents an appealing opportunity despite the gloom and doom perceived by the market,” the report said.

UOB Kay Hian expects developers to be re-rated upon confirmation of price correction being arrested at more moderate 10-20% levels.

“Property stocks are trading near undeserving crisis valuations. We remain overweight on the property sector,” the report noted.

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