Dull domestic property market driving big developers overseas

SREITs are fleeing from slow demand and elevated prices.

Singapore’s residential developers are fleeing the country in search of greener pastures abroad. As SREITs continue to bear the brunt of the property cooling measures, UOB Kay Hian reports that more firms are now exploring overseas opportunities to augment their thinning margins.

According to UOB, a number of the country’s largest developers have forayed into overseas properties in recent months. Prime examples include OUE’s JV with Caesars Entertainment to develop an integrated resort and casino at Incheon in South Korea, while CDL has invested £152m in five freehold sites in the UK and Ho Bee Land has acquired a London office development for £171m.

“Developers are deep in value but lack near-term catalysts. An analysis of the peak/trough P/B multiples in past cycles suggests that developers offer an attractive upside potential of 152% vs a downside risk of 39%. However, near-term newsflow from the residential segment is likely to be negative. The slowing residential demand and elevated land prices in Singapore are prompting developers to explore overseas land acquisition opportunities,” noted UOB Kay Hian.

Here’s more from the report:

Recent bids indicative of a cautiously optimistic stance among developers. The participation rate for government land tenders ytd has been moderate in the 4-12 range.

Recent developer bids have been pricing in flattish to a 10% fall in property prices. Sites with overall quantum below S$200m and with proximity to MRT stations have been heavily contested. Our channel checks with developers suggest a cautiously optimistic outlook for the property sector.

Industrial REITs continue to deliver growth through acquisitions both local and overseas, build-to-suit opportunities (BTS) and AEIs to upgrade existing buildings and also through positive rental reversions.

We anticipate that business park and high-tech space will benefit in the medium term as rising occupancies and rentals for office space will lend support to a recovery in the segment.

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