Value In The Real Estate Sector

Real estate is really big business.

In fact, the Real Estate Management & Development sector is one of the four key sectors that make up the financials industry. There are over 50 companies listed on the Singapore market. Of these 18 have a market capitalisation of over S$1 billion.

Interestingly, 18 companies within the sector are priced below their book value. Could the Real Estate Management and Development Sector be overflowing with value?

The biggest player in the industry is Hongkong Land Holdings (SGX: H78). It has a market capitalisation of S$24b. This values the company at 16 times earnings, which might seem high compared to the wider market. However compared to its book value, Hongkong Land appears cheap – it is priced at 30% below book.

A look at some of the other companies within the sector could offer potentially greater rewards for value investors, though.

Frasers Centrepoint Limited (SGX: TQ5), which is capitalised just shy of S$5b is discounted at 20% below its book value. Its earnings ratio of 12.5% appears more reasonable. Meanwhile, its dividend yield of 5% is more than twice the risk free returns available. Frasers also offers investors one of the highest yields of the 18 largest property developers.

A third candidate for the best value company in the sector is Wing Tai Holdings Limited (SGX: W05). Its P/E ratio of 7 is lower than Frasers’ and its dividend yield of 3.3% is adequate. Wing Tai is also the most heavily discounted from its book value. Its current market cap of S$1.4b is only half of the value of its net assets.

It could be argued that all three companies, as well as others within the industry, could be good value opportunities. But why are they cheap?

The assets are only worth the money that people are prepared to pay. Perhaps the market has discounted them for good reason – they are unreasonably high. But then that has always been the nature of property – people always think it is too expensive, until it isn’t.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Adam Kuo doesn’t own shares in any companies mentioned.