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While Singapore property stocks have taken a hit, DBS Vickers Securities says some sectors may still offer good returns.
DBS, as cited in a report by The Straits Times, said it expects the retail sector to remain resilient even as rents and prices are expected to drop across most major real estate sub-sectors due to the modest economic outlook.
“We expect retail to continue to deliver stable returns with a preference towards suburban landlords, where there is limited impact from e-commerce, and performance should be able to withstand economic shocks, if any,” it said.
Aside from increased supply, sectors such as hotels and offices are also expected to feel the brunt of the slowdown. In fact, office landlords will likely feel the heat as key tenants from the financial industry scale back and move to suburban business parks. As such, DBS expects office rents to fall by up to 20 percent this year and in 2017.
Nonetheless, it believes that it is time to re-look at developers since valuations are “too cheap to ignore”. Currently, developers are trading at an attractive 0.7 times price-to-book which is near to cyclical troughs.
DBS names Frasers Centrepoint, City Developments and CapitaLand as its top developer picks due to their improving return on equity, conservative balance sheets and diversified earning bases.
On real estate investment trusts (REITs), DBS said it prefers “resilient sectors and selected offshore-focused S-Reits with continued ability to deliver consistent growth”, listing Frasers Centrepoint Trust, Ascendas Reit, CapitaLand Retail China Trust and Mapletree Greater China Trust as its top picks.
Given the headwinds in the various segments, growth distribution per unit for S-Reits is expected to moderate from 2.7 percent last year to 2.2 percent this year.
The increasing US interest rates will also make borrowing more expensive for REITs, while the increased cost of capital is expected to limit acquisitions, it said.
S-REITs dropped 10.1 percent last year, underperforming the Real Estate Developers Index, which dropped 2.9 percent.
Nikki De Guzman, Editor at CommercialGuru, edited this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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