PropNex

PropNex@196
1HFY2021 Great result with 5.5 cents dividend
https://links.sgx.com/FileOpen/PXL%20Res...eID=678069

https://drive.google.com/open?id=1xbZ16u...kEr-3xo-X5

Stay home and stay safe, everyone.

(16-07-2022, 08:25 PM)karlmarx Wrote: How nice to see you still active Specuvestor. Markets could get interesting soon and I'm starting to spend a little more time looking for ideas again.

I actually like APAC and Propnex a lot (not at current prices though) because they are a toll booth on SG real estate market and each of them own about a third of the market. It's crazy why they are allowed to get so big and if you are a developing a big project, you really don't have a lot of choices when it comes to choosing a marketing agent.

For Hopefluent, it is unfortunately one of many agents, and from the margins charged by them to developers, it is obvious that HF has no bargaining power. So much so that it has to be a 'lender' to the developers.

Both companies (Hopefluent vs APAC/Propnex) have similar models, but the former is in a big market while the latter is in a market with efficient scale. Someone once taught me the theory that oligopolies are the best form of business to invest in and after some practice, I think the theory is right. And I think the latter got so big because the Singapore property market is not really big (looking at Propnex's AR21 and assuming they have 50% of the agency market --> 2*957mil annual revenue --> 1.9billion market for property commissions)

I reckon property agencies are a good proxy play on the Spore property market, although I still feel the best way to get exposed is to get a property yourself. But of course, investing in property agencies come with lower leverage (and hence lower risks) and required capital outlay. But one thing for sure is that property agencies are a better proxy play than investing into developers (and especially those family owned ones).

@karlmarx mentioned this counter in hopefluent thread and I went to have a look. It seems there will be good dividends this year, But in the face of rising rates(rising SGD in our case) and global recession will SG property market be that resilient? Do notice a string of director buy in, despite the dropping share price. 

Will it be a slow grind down in share price back to pre covid levels?

It depends on the views of the property market one has of Singapore. Propnex and Apac earns a cut of the property price.

If there is a slowdown in the velocity of property changing hands or property prices fall, their revenue suffers. However, given the lax immigration Singapore government has offered to foreigners, its successful policy of attracting chinese money here to set up family offices/residency and allowing leveraged property funds to open without much regulation/and selling a unit of their funds to the masses, I am not sure if it will be a slow grind.

(17-07-2022, 10:21 AM)CY09 Wrote: It depends on the views of the property market one has of Singapore. Propnex and Apac earns a cut of the property price.

If there is a slowdown in the velocity of property changing hands or property prices fall, their revenue suffers. However, given the lax immigration Singapore government has offered to foreigners, its successful policy of attracting chinese money here to set up family offices/residency and allowing leveraged property funds to open without much regulation/and selling a unit of their funds to the masses, I am not sure if it will be a slow grind.

Yeah i was just wondering if the director buy in is some sort of signal or maybe they are doing the wrong move as they are not expecting a global recession and slowdown. 

I reckon the flow of foreign/chinese money will at some point dry up as things are not that rosy in China and leveraged funds at some point will have to deleverage when credit conditions tighten. Perhaps like with the 3AC fiasco, we might see similar happenings in the property sector due to lax regulation?

The desirable long-term trend of SG real estate is gradual appreciation. And the events of the past two years have burnished SG's reputation as the Switzerland of the East in terms of wealth management. I don't see this trend going away in the next 10 years.

Obviously the probability of a correction in the real estate market is now higher. A lot will probably depend on where interest rates will be. All that loose money over the past decade has been financing a lot of innovation (both bona fide and otherwise) and asset price inflation. I think it will be interesting if local fixed deposit rates goes up to 5% and mortgage rates up to 7%. What will REITs yield? Will more of the cash-rich stocks like TTJ go private? And will real estate investors face difficulty in servicing their mortgage?

Anyway, markets are always going in boom-bust cycles, unless you're in an industry that is in terminal decline (like traditional print and broadcast media). Maybe SG real estate will have a mild correction, maybe it will be severe with a quick recovery, or maybe it will continue to move higher. Whichever it is, one must also keep in mind that companies (like Propnex/APAC) and the business landscape they operate in are not static, and they may do better or worse than the market.

SG government will want to avoid a severe correction so they will probably pull whatever lever they have to ensure that this does not happen. Since they currently do not expect a recession, they probably do not expect any severe correction in the real estate market.

Property agents is the middle man. A few events/trend have already started to emerge to to make this trade less profitable in the longer term. There is advancement of technology but the pace of change/adoption is slow as property transactions are lengthy and involve many stakeholders. The major driver are actually the buyers/sellers themselves.

I have witnessed for myself how hardworking some of the investment buyers are. They do not deal with agents and deal direct most of the time. They work harder to source out the properties and is extremely aggressive in their pursuit of finding suitable areas. Some are individual businessmen, some are a collective. I am extremely impressed with the work done by some of these collective. When seeking out opportunities, they are much more knowledgeable than nearly all the agents. These collective knows exactly which area will have price appreciation, the pace of appreciation, what price to pay, and the timing of when the prices are going to go up, what is the rate of return, etc Very very impressive. I may or may not have been their equal in terms of access to quality/scope of these information. I am not an active property investor but I do need to up my game in many other areas after seeing my own deficiency.

I spoke to an agent and informed of these investors and the reaction was "really?" I supposed the agents that deal with commercial properties are taken slightly aback. Their mindset was such that all buyers wont seek out properties for sale directly and competition ONLY lies between the agents.

So going back to propnext and property agents. The easy money phase is over. The measure of how successful the company in the long run will depends on the competence and capability of its agents going forward and not so much of how well the property market does. The co-relation will slowly be weakened over time if they continue to operate the same way going forward. The run way is long, but it will eventually end at some point if nothing is done.

So long as commissions are kept low, I believe most sellers will choose to engage an agent to represent them instead of negotiating directly with the buyers. This is something tech cannot yet do better than a salesman. A 1-2% fee does not mean anything to most sellers. Although attempts to disrupt this model as so far been unsuccessful, I would think it is only a matter of time before better tech solutions emerge.

Certain aspects of residential property sales/marketing just cannot be taken over by IT, including :
1) For new launches, organising pre-launch seminars; bringing prospective buyers around the show apartments to explain the project, pricing, and help them to select their appropriate units; to bring in as many prospective buyers as possible during the launch phase, and to achive a certain level of unit sales based on the launch pricing level within a reasonable period of time. For the above, developers have to engage the big boys like ERA and PropNex, and are willing to pay as much as 4% in sales commissions.
2) For resale properties, many individual sellers need a good agent to advise on the appropriate selling price level; spend some money to refresh the properties to a marketable state (assuming the properties are empty); spend some money to make a marketing video, spend some money to advertise the property in multiple channels; engage the prospective buyers who call in to enquire leading to a viewing of the actual property; be there for the actual viewing to walk through the property with the prospective buyer and answer any questions he may have; assist in the price negotiation between the seller and the buyer (including through his agent) with the view to close a deal; and finally hold the hands of the buyer and the seller and sort out any problems along the way till closure and final settlement. For the above, typically the sellers have to pay up to 2% sales commissions, which have to be split between the seller's agent and the buyer's agent (if there is one). This is more than fair for the work involved.

Don't forget residential property rental market which is quite big in SG due to the constant influx of foreign workers including highly paid expats. The standard commisiion for the agent is one-month rental.

When residential property prices and rents rise, the agents and the likes of ERA (APAC Realty) and PropNex naturally make more too. What support all these is the vibrancy and resilience of the SG residential property market, which has experienced steay price increase over time due to SG's rather unique economic charteristics plus political stability.

I lean more towards the commercial side of properties, so perspective might be slightly baised. I do agree the residential properties will have a longer runway. But I stick to the view that the main job of property agents of finding and matching buyers and sellers will diminish.

A lot of complex tasks are being aided with advancement of technology. Given the right motivation, there is not many task(s) that the buyers/sellers can't do as well as the agents.