URA statistics showed that developers sold 642 private residential units (excluding ECs) for the month of Oct, representing decline of 30.8% YoY and 51.7% MoM. The lower sales can be attributed to the effects of URA’s new restrictions on the re-issue of Option to Purchase (OTP) by developers which came into effect from 28 Sep 2020, coupled with the fact that there was only one project launched in Oct.

For 10M20, developers have sold 8,021 new private residential units, which is down 4.5% YoY. This is on track to meet the upper-end of our full-year forecast of 8,000-9,200 units. Positive developments over the Covid-19 vaccine and therapeutics front have undoubtedly boosted investors’ sentiment over the beleaguered real estate sector, given that it has bore the brunt of the debilitating effects of the Covid-19 pandemic.

Although the FTSE ST Real Estate Holdings and Development Index (FSTREH) has seen a share price rebound of 9.1% since the Pfizer and BioNTech vaccine news emerged, we opine that valuations remain cheap. Given the positive sentiment uplift on the potential recovery in the hospitality, retail and office sub-sectors, we stick with CapitaLand Limited (CAPL SP) as our top sector pick. We also add UOL Group (UOL SP) to our list and move it ahead of City Developments Limited (CIT SP) in our pecking order.

While we continue to be buy-rated on CIT SP, we believe there could be some near-term overhang on its share price until findings from its external financial advisor on its investment in Sincere Property Group is made known by the end of the year.

The path to recovery ahead for developers will remain bumpy, but we believe there is room for developers to finally outperform the broader market as the rotation play to value and cyclicals gathers momentum ahead.

Source: OCBC Research - 18 Nov 2020