For investors who are looking to buy into any property or property stocks might want to think twice now. According to Morgan Stanley, there is as much as 25% downside to Singapore developers' stocks, based on its view that residential prices will correct 20% over the next two years. They suggest that the property sector will only improve toward end of 2012.
The concerns over residential include slower GDP and population growth leading to supply imbalance, and has a bear case of a 40% drop in prices. It says developers are trading at around 20% discount to RNAV and still a far cry from its historical trough at around 60%.
They do not expect a draconian discount during this cycle as balance sheets are stronger, and bank system liquidity as well as end-user affordability is high. However, it says continued fears over global macro and downside risks to Singapore property prices could mean that the stocks could trade down to a 40% discount.
Though it is in our view that Singapore HDB and resale market should be quite resilient to any slowdown in economy, existing private home-owners should brace themselves for any fall in prices and rental income. Investors who want exposure to the sector can consider REIT which is defensive in nature and pays dividends regularly.
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