High-end developers back in the spotlight as policy easing expectations intensify

They're cheap and have strong balance sheets.

After bearing the brunt of Singapore's stringent property cooling measures, high-end developers are making a comeback as talk of potential policy easing intensifies.

"Given the muted outlook in the high-end property segment, property developers with significant exposure to the high-end segment are trading at dramatic discounts to fair values. Although we forecast physical high-end prices dip another 0%-10% ahead over FY15-16, we believe prices of listed developers are overly discounted and have fully priced in the negatives," said OCBC analysts Eli Lee and Andy Wong in a report.

High-end residential prices have suffered double-digit declines since cooling measures, in particular the Additional Buyer's Stamp Duty (ABSD), were rolled out from 2010 to 2013.

“Given that the ABSD is a percentage upfront tax on property purchases that has a straight-forward impact on demand, we believe it is a likely candidate for adjustment if and when the authorities reverse policy stance to support homes prices. We believe the government has a strong track record of actively reviewing its property legislation and would intervene if prices accelerate excessively to the downside,” they said.

“We believe investors should seek exposure to high-end developers with strong balance sheets that are trading at attractive discounts to fair values. In the event that we see a reversal in property measures from the authorities, we believe these stocks would likely re-rate rapidly,” they added.