In case you haven?t heard, private residential property sales in Singapore had jumped by 37.5% in March this year when compared to the previous year. The recovery in China property prices was even more exaggerated. In March, Chinese property sales from 37 major developers spiked by 111% year-on-year while a record RMB636 billion in real estate loans were extended to households there.
It would appear that a late February change in the chief Chinese securities regulator and the loosening of monetary policy by China?s central bank, the People?s Bank of China, had finally boosted animal spirits in…
In case you haven’t heard, private residential property sales in Singapore had jumped by 37.5% in March this year when compared to the previous year. The recovery in China property prices was even more exaggerated. In March, Chinese property sales from 37 major developers spiked by 111% year-on-year while a record RMB636 billion in real estate loans were extended to households there.
It would appear that a late February change in the chief Chinese securities regulator and the loosening of monetary policy by China’s central bank, the People’s Bank of China, had finally boosted animal spirits in China. All these are in the context of stronger than expected economic numbers for the country in the first-quarter of 2016.
A bullish property cycle… or not
The strong surge in property prices in March raises the question: Does it represent the start of a long-term cyclical upswing for property prices in Singapore and China?
In the case of China, it has to manage a delicate transition in its economy from an export and investment-led model to a consumption-based one. The country also has to manage its significant debt burden, all the while keeping an eye on geopolitical tensions in the South China Sea area. These are risks that could affect Chinese property prices.
Let’s get real: Two real estate stocks
There are many property development companies in Singapore’s stock market that have exposure to both the Singapore and Chinese residential real estate market. Let’s take a look at two such companies.
One’s CapitaLand Limited (SGX: C31), a big real estate developer in Singapore’s stock market with a market capitalisation of over S$13 billion. According to its 2015 annual report, 83% of CapitaLand’s total assets at end-2015 were located in Singapore, China, and Hong Kong. In the same year, 56% of the company’s total revenue came from the trading of properties.
CapitaLand reported a 35.4% jump in profit in the first-quarter of 2016 partly as a result of strong residential sales in Singapore, China, and Vietnam.
The next company is much smaller and that is Perennial Real Estate Holdings Limited (SGX: 40S). The company has a market capitalisation of around S$1.5 billion at the moment and it has interests in integrated developments (a development that combines many different types of real estate such as retail, offices, residences, healthcare etc.) mainly in Singapore and China.
Unlike CapitaLand, Perennial is heavily tilted toward China. 72.6% of its total assets are based in China while only 21% is located in Singapore, as stated in its 2015 annual report.
A Foolish Conclusion
Both CapitaLand and Perennial have seen their share prices fall by the mid-teens percentages compared to a year ago. In the case of CapitaLand, its stock has fallen by 17% to S$3.09 currently. As for Perennial, it’s sitting on a 17% decline at the current price of S$0.915.
Both firms are trading well below their book values at current prices. To the point, CapitaLand and Perennial have price-to-book ratios of 0.74 and 0.54, respectively.
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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 Ong Kai Kiat does not own shares in any companies mentioned.