Here’s How You Can Benefit From The Singapore Property Market Upturn

The Singapore private property market seems to be in a recovery mode, after a four-year bear market.

Flash estimates by the Urban Redevelopment Authority (URA) released on Monday, 2 April, showed that private home prices in Singapore rose by 3.1% in 2018’s first quarter when compared to the preceding quarter. This is the steepest quarter-on-quarter increase since the second quarter of 2010. The latest statistic follows the turning point reached in the URA property price index in the third quarter of 2017.

For those who believe in the long-term potential of properties here in Singapore, this could provide an opportunistic time to invest. However, not many may be able to fork out hundreds of thousands of dollars in cash to pay the down payment for an investment property.

For those who still wish to partake in the property sector upturn without doling out loads of cash, they could buy stocks in property developers such as CapitaLand Limited (SGX: C31), Frasers Property Ltd (SGX: TQ5), and City Developments Limited (SGX: C09).

CapitaLand, the biggest property company in Singapore’s stock market in terms of market capitalisation out of the three, said in its 2017 fourth-quarter earnings report that it “expects residential property market sentiment to remain positive, underpinned by increased transaction volumes and a recovery in home prices.” Frasers Property and City Developments also expressed optimism about the residential property market in Singapore in their latest earnings updates.

Another way to indirectly benefit from a potential recovery in the local property market is to invest in an intermediary that is involved in the property sector. There is such an intermediary listed in the local stock market, and that is APAC Realty Ltd (SGX: CLN).

APAC Realty is a real estate services provider with three primary business segments: real estate brokerage services; franchise agreements; and training, valuation, and other ancillary services. The real estate brokerage services segment is operated by its wholly-owned subsidiary, ERA Realty Network Pte Ltd, one of Singapore’s largest real estate agencies.

Given that it has three business segments, it’s not surprising to learn that APAC Realty makes money in many ways. For example, the company receives project commissions from developers for primary project launches and selling commissions from sellers for resale properties. The following chart summarises APAC Realty’s business model:

Source: APAC Realty initial public offering (IPO) prospectus

In 2017, APAC Realty made S$400.6 million in revenue, up 39.2% from 2016. The improvement was mainly due to higher brokerage income from resale and rental of properties, and new home sales. The recovery in the Singapore residential market, which saw a vast increase in transaction volume for the private primary and secondary market, benefited the real estate services provider.

In its market outlook statement given as part of its 2017 full year earnings update, APAC Realty said that it is expecting prices for private homes to increase between 3% and 8% for 2018, as compared to the 1.1% increase in 2017. It added that the “good buying momentum seen in 2017 is expected to carry into 2018 and we are likely to see overall transaction volumes exceeding well over 2017’s 25,010 units (excluding EC transactions).”

For those who are interested in learning more about APAC Realty’s business, you can check out a deep dive into the company’s key financial figures that can be found here.

The Foolish conclusion

After a four-year hiatus, the Singapore property market looks set to improve once again. Big name property developers are bullish, and this can be seen from their recent market outlooks.

Potential investors who wish to ride the upturn with a long-term view may be provided with an opportunity right now. One way to invest in the property market is through a real estate services provider such as APAC Realty.

However, before investing in any company, investors should conduct due diligence and ensure that the investment fits their risk appetite. Who knows, the property market could make a sudden U-turn if the government decides to implement more cooling measures.

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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 Sudhan P doesn’t own shares in any companies mentioned.