Research house upbeat on property stocks

Source : Business Times - 7 Jan 2009

It cites falling interest rates and possible favourable Budget measures

INVESTORS can re-visit property stocks as falling interest rates and possible Budget measures improve the operating environment for real estate companies this year, said Kim Eng Research in a report yesterday.

The report came on a day when property stocks retreated after a rally in earlier sessions. CapitaLand, one of Kim Eng’s top picks within the sector, ended a five-day rally with a 19-cent fall to $3.40. City Developments also shed 10 cents to close at $7.15.

In its report, Kim Eng said that transactions across all property asset classes are likely to remain at a standstill at least until mid-2009. But ‘we think that there are opportunities for an increased risk appetite . . . the share prices seem to suggest that investors have been overly risk-averse’, it said.

‘When economies emerge from the recession and market confidence returns, the property markets will be quick to react, possibly re-emerging as the sector to watch from as early as 2H09.’

The research house believes that property companies can benefit as economies cut interest rates to battle recession. It noted that the three-month Libor is now at its lowest level since June 2004.

‘These measures will lower the developers’ interest payments for loans taken up for land acquisitions and construction. Furthermore, when sufficient risk appetite has returned, the developers may also find it easier to access credit for new investments,’ it explained.

Banks may also introduce more attractive mortgage packages in the low interest rate environment, encouraging genuine homebuyers to enter the market, said Kim Eng.

This year’s Budget may also contain help measures for the property sector - for instance, the government could reinstate the deferment of stamp duties until projects are complete, said Kim Eng.

And compared with the days of the Asian financial crisis, many property developers today have healthier balance sheets, it added. ‘Overall, our picks for the property sector are City Developments and CapitaLand.’

But another research house OCBC Investment Research downgraded its rating for CapitaLand from ‘buy’ to ‘hold’ on Monday. Valuing the counter at $3.27, analyst Foo Sze Ming said that ‘we see little upside to its share price at the moment’.