Why are property counters undervalued?

[davidsim]

Hi everyone, I was just wondering why are most property stocks (excluding REITS) trading at 50% discount to RNAV while the actual properties themselves seem to be trading at a premium to RNAV?

The 3 reasons I can think of are control of the property, the ability to "withdraw" CPF and the leverage involved but I am wondering if these 3 factors are worth the 100% premium an individual residential/industrial/strata office unit commands over a property stock.

Also would anyone consider having a diversified holding of various undervalued property counters as a cheap way of maintaining exposure to the Singapore property market and therefore a long term inflation hedge?

[opmi]

Expectations of future property prices is a factor in the mkt disc to RNAV. During 2007-2008, property stocks are trading at small disc to RNAV.

Next, if a property going to sell all its property AND don't do any more development, share price should trade closer to RNAV.

Regarding property counters as inflation edge, I guess have to stick to undervalued stocks with mgt that are very good at timing markets. A lot of developers has not play in the depressed property mkt before.

[Stockerman]

Is the memory of the property doldrum (1980s to early 1990) still fresh in the mind of investors?

Interest rate in US is likely to go up much sooner than expected. The cycle will come again, and property counters will get hit very badly.
til then, everyone will just continue playing along with the music of low interest rate...

[dzwm87]

Another reason could be due to discounted cash flow. Not all properties are valued to be sold and paid immediately.

A project may take 1 to 2 years to phase out in terms of sales. Remaining inventories (after construction completion) may take even longer. Cash flow payment for the properties are also phased out and while take a while before the developers actually receive cash.

So this as well factors into the valuation. 1x P/B may not always seem to be the fair valuations and the largest discount to book may not always seem to be the most undervalued as well.

[Stockerman]

Many private condos are not occupied
May 11th, 2013 | Author: Contributions

http://www.tremeritus.com/2013/05/11/man...-occupied/

Figures from the Urban Redevelopment Authority show that private home prices rose 0.6 per cent in the first quarter, while prices of resale HDB flats increased by 1.3 per cent (“HDB resale deals at 16-year low”; April 27).

This is despite the Government introducing measures for the seventh time in January to curb rising property prices.

It is unhealthy for the Government to keep releasing state land for property development because there is no shortage of public and private properties.

Just drive through Sentosa Cove, Keppel Road, Holland Road, River Valley and East Coast Road, for instance, and you can see that many condominiums are partially occupied.

I have driven past several condos every evening for almost a year and noticed that they are only 30 per cent to 40 per cent occupied.

The owners could be foreigners who do not live in Singapore, Singaporeans and permanent residents (PRs) who leave their apartments vacant for various reasons, or even developers which are deliberately keeping the units to support the rise in property prices.

The Government must adopt tough measures to curb the purchase of private properties by foreigners and PRs by imposing a capital gains tax of, say, 30 per cent to 40 per cent. This would be far more effective than the additional buyer’s stamp duty.

Also, a higher property tax should be imposed on all units not sold by developers within 12 months after the property obtains its temporary occupation permit.

Finally, foreigners and PRs should be allowed to buy only one private property in land-scarce Singapore. If they keep buying up luxury condo units and landed properties, it will exacerbate the rich-poor divide and price Singaporeans out of the market, which may lead to an outflow of Singaporeans.

It is sad that Singapore is facing a declining population and also has a glut of vacant private properties.

[Bibi]

One reason condos are not occupied is because the rich parents are buying for their young children.

[CY09]

So if parents are financing these condos via loans and the global interest rates hit above 10% like in the 1970s and Pre 84s. This means interest expense goes to about 5 times what it is today, how many people will start defaulting, and what is the fall in pte property prices?

US interest rate chart: http://www.tradingeconomics.com/united-s...erest-rate

[Bibi]

So if parents are financing these condos via loans and the global interest rates hit above 10% like in the 1970s and Pre 84s. This means interest expense goes to about 5 times what it is today, how many people will start defaulting, and what is the fall in pte property prices?

US interest rate chart: http://www.tradingeconomics.com/united-s...erest-rate

I am referring to rich parents. Usually those who can afford to leave their properties vacant are rich. I hv a ex colleague who told me few weeks back his dad bought a condo unit. I am quite puzzled. His dad made his multi millions from shares investment. Why would he suddenly take an interest in property? My guess is scare price run away and his children hv difficulty to afford one. I believe he can easily show hand the condo unit. But it makes sense to loan since rates so bloody low now.

[bookworm]

Hi everyone, I was just wondering why are most property stocks (excluding REITS) trading at 50% discount to RNAV while the actual properties themselves seem to be trading at a premium to RNAV?

The 3 reasons I can think of are control of the property, the ability to "withdraw" CPF and the leverage involved but I am wondering if these 3 factors are worth the 100% premium an individual residential/industrial/strata office unit commands over a property stock.

Also would anyone consider having a diversified holding of various undervalued property counters as a cheap way of maintaining exposure to the Singapore property market and therefore a long term inflation hedge?

Yes, from investment perspective, this is the most logical approach. Direct investment into private residential market unlikely to yield good returns after 7 or 8 rounds of anti-speculative measures. Of course, the downside would be cushioned as well when these measures are removed to draw in buyers.

The proxy is thus property counters with steep discount with potential to be unlocked. Have to study the properties type they hold as well as the management attitude towards minority shareholers. Look for TINA or "Godfather" companies, if I may borrow from GG.

[weijian]

I have known a couple of expats who lives in the River Valley and Novena area, under their company account.
When i was at my expat boss's Novena condo for a BBQ farewell party on a friday night (7-9.30pm), i tabulated the no. of lighted windows (glancing from the pool area) and came to very similar statistic of 30-50% occupancy rate (in fact, my count was only about 30% but i factored in that at least 30% of the expats were out on a friday night at clarke quay)

I believe the majority of these centrally located condos are for rental purposes. Owners are able to keep them unoccupied as they have holding power onto their rental rate demands, in the face of lower interest rates and rising asset prices.