Singapore real estate stocks have done well for themselves recently. Looking at two real estate indices, both have performed well, with the iEdge Real Estate Developers & Operators Index delivering 41% on total return (i.e., including dividends) and the iEdge SG Real Estate Index delivering 23% on total return.
These two indices include various segments of real estate, including developers, operators as well as REITs and includes most of the well known names such as CapitaLand, Mapletree, Keppel, City Development, UOL Group, Hongkong Land, Wing Tai, Yanlord Land, Ho Bee Land and even smaller caps such as Propnex, Centurion and Wee Hur just to name a few.
What’s Driving the Recovery?
This performance has been driven by expectations of strong earnings, generous capital returns (dividends or buybacks), and renewed investor interest after prolonged undervaluation.
Both indices have underperformed compared to the Straits Times Index (STI) on a 1 year basis, with the STI underpinned by the banks delivering an impressive 45% just on share price return.
The value unlocking theme has been a big focus on the SGX with the S$5 billion EQDP funds with nearly $4b already allocated. The mandate is to strengthen Singapore’s equities market, improve liquidity, and thereby attract quality listings. One way to strengthen the equities market is to increase the depth of the market by investing in value plays.
Property developers tick the box as value stocks when referenced to the book valuation as most trade at a significant to NAV and RNAV. Although earnings quality do matters, many investors view the discount to book as a floor that mitigates downside risk.
Therefore, this begs the question as to whether there’s still more room to run for Singapore developers and whether there is still value at hand.
The Value Case for Singapore Developers
No doubt there would be value when looking at the valuation of these companies from a book value perspective. However, many of these companies have traded at a significant discount for long, unable to unwind the discount.
The condition of the broader market plays a part, with lacklustre demand for and less attention on the smaller companies. The larger companies including the developers also still trade at a significant discount, which we opine is due to the quality of the assets as well as the earnings, and dividend yield. As many developers carry significant levels of debt as part of working capital, the previously high interest rate environment also exerted a toll on earnings. However, with interest rates low, especially for SGD denominated rates, the Singapore Developers are now garnering interests both from institutional and retail investors.
With regards to value, essentially, in the Singapore market, all stocks are going to be benchmarked for total returns against other well known names in the STI.
Here we look at the current valuation of the major Singapore Developers and try to identify if any of these still offer value upside.
| Developer | Ticker (SGX) | 1Y perf (%) | Share price ($) | RNAV* ($) | NAV ($) | P/RNAV (times) | P/NAV | P/E (times) | Yield (%) |
| UOL Group | U14 | 113 | 10.83 | 14.6 | 13.59 | 0.74 | 0.80 | 21.1 | 1.66 |
| Bukit Sembawang | B61 | 46 | 5.2 | 10.70 | 6.13 | 0.49 | 0.85 | 13.7 | 0.77 |
| Hongkong Land | H78 | 94 | 8.36 | N.A. | 13.62 | N.A. | 0.61 | N.M. | 2.75 |
| GuocoLand | F17 | 81 | 2.62 | 4.50 | 3.90 | 0.58 | 0.67 | 31.1 | 2.67 |
| City Development | C09 | 84 | 9.34 | 19.77 | N.M. | 0.47 | N.M. | 42.8 | 0.86 |
| Frasers Property | TQ5 | 40 | 1.20 | 2.80 | 2.37 | 0.43 | 0.50 | 20.5 | 3.75 |
| Ho Bee Land | H13 | 37 | 2.48 | N.A. | 5.56 | N.A. | 0.45 | 11.0 | 1.61 |
| Wing Tai | W05 | 35 | 1.68 | 4.2 | 3.73 | 0.40 | 0.45 | N.M. | 1.79 |
Based on the compiled table, we note that many of these companies are still trading at a substantial discount to both its NAV and RNAV, even after a one year share price run up of 35% to 113%. However, many of them are trading at lofty earnings ratios and deliver low yields.
Three Earnings Engines That Matter
This is largely because developers depend on three earnings engines, being development income, investment income (including yield on investment assets as well as asset management) and revaluation gains (which arises from book gains as well as from recycling assets).
Asset recycling is a major factor as many developers have a sizeable balance sheet of investment assets. Developers would also be in a position to distribute special dividends or carry out share buybacks should their asset recycling plans come to fruition. Market watchers expect many of them to selling non-core assets, recycling the capital into higher-value projects or returning capital to shareholders, a strategy that can materially boost share prices when executed.
Many of the developers are also focused on the Singapore market, whether is it commercial, residential or other asset classes such as data centres. As a whole, Singapore’s asset prices and demand indicators remain robust, supporting developers’ order books and earnings. This underpins stock valuations and provides visibility into future earnings.
Key Risks Investors Should Watch
Even with potential value, investors should be aware of key risks:
1) Interest Rates: Rising financing costs can dampen property demand and margins.
2) Market Cyclicality: Property markets are inherently cyclical; slowing sales could trigger re-rating reversals.
3) Execution Risk: Large redevelopment and launch timelines can slip, delaying earnings.
4) Regulatory Oversight: Singapore’s property cooling measures and MAS policy updates can influence sales velocity and valuations.
Safe to say, none of the developers have all three engines firing at their maximum potential and delivering strong returns. Most of them either have one or two doing well and some of them have all three moving, albeit at a lacklustre pace.
Closing statements
However, if we have to pick from the list, we think City Development and Guocoland could be the two names which may still offer value.
Ever since the Sincere Property Group saga, City Development is trading below peer valuations and undergoing a multi year transformation, looking to unlock value via divestments and stream line and focus its business.
GuocoLand has a significant exposure to the private residential market in Singapore as well as several prime investment assets such as the Guoco Tower and Guoco Midtown. The company has been a good example of growth at a steady pace with well managed timing of land banking.
Stable recurring income makes GuocoLand less vulnerable to the peaks and troughs of timing sales than pure developers, especially when residential demand ebbs or slows.
Because Singapore property values have been rising and high-quality assets tend to appreciate over longer cycles, maintaining such a discount indicates potential upside if market sentiment improves further or if management unlocks value.
Coincidentally, GuocoLand is actually related to City Development with both under the broader Hong Leong Group umbrella. However, they are distinct and independent companies.
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