Singaporean’s love affair with property has been well-documented over the years.
As the city state modernised, real estate prices have risen alongside, as can be seen from the graph below.
Source: Urban Redevelopment Authority
Property price was temporarily derailed after the Global Financial Crisis but quickly surged higher once the crisis was over.
Despite the imposition of eight rounds of cooling measures since December 2011 to dampen demand, prices remained resilient.
Recently, private home prices have once again crept up, this time by 0.8% in the second quarter of this year. The rise in prices followed a 3.3% increase in the first quarter.
Meanwhile, July also saw a significant surge in private home sales, with 1,589 units being sold, 82% higher than the number sold in June.
The surge can be attributed to Singapore’s gradual easing of COVID-19 restrictions as more of the population gets vaccinated.
There is also demand from buyers who are upgrading from public property (i.e. HDBs).
The biggest beneficiaries of this rebound have been the property brokerages, namely PropNex Limited (SGX: OYY) and APAC Realty Ltd (SGX: CLN).
PropNex has around 9,450 sales professionals and offers a range of services such as real estate brokerage, training and consultancy.
APAC Realty, through its subsidiary ERA Realty Network, employs around 8,150 agents and also provides a wide range of property-related services.
Backed by rising home prices, both companies are seeing their revenue double in their fiscal 2021’s first half, compared to a year ago.
With that in mind, is it too late for you to catch the surge?
And are there any major risks that investors should watch for?
Sparkling sets of numbers
PropNex saw revenue surge by 100.1% year on year to S$481.1 million, with gross profit jumping by 88.2% year on year to S$51.1 million.
Net profit more than doubled from S$16 million to S$34.4 million over the same period.
The group has logged its highest quarterly revenue since 2018, showcasing the strength of property buying activity.
Meanwhile, APAC Realty announced a year on year doubling of revenue from S$172.8 million to S$358.4 million in 1H2021.
The firm’s net profit soared by 121% year on year to S$17 million.
Shareholders are benefitting from the spoils of the first half of the year.
PropNex has declared an interim dividend of S$0.055, its highest since listing and more than three times the S$0.015 that was paid out a year ago.
APAC Realty did one better by declaring an interim dividend of S$0.035 and a special dividend of S$0.03, totalling S$0.065.
This level of dividends was eight times more than the S$0.0075 paid out in the prior year.
Home launches and demand remain strong
Barring a significant deterioration in the economy, PropNex is projecting around 11,000 to 12,000 new private residential units (excluding executive condominiums) and 16,000 resale units to be transacted.
This number represents a 15% increase for new units and a nearly 50% jump in resale units compared with 2020.
In addition, the group is also expecting a 6% to 7% price rise, with a dwindling supply of unsold stock helping to cushion any price declines.
This combination of higher volumes and rising prices bodes well for PropNex and APAC Realty.
The overall property price index for 1H2021 has already increased by 4.1%, so it’s not unreasonable to expect prices to inch up further as the country opens up and eases more restrictions.
The property duo will be playing a big part in helping to move newly completed property projects.
PropNex has also been appointed as the agent for another 15 projects to be launched in the second half of 2021, with around 3,718 units lined up.
APAC Realty was appointed the marketing agent for 25 residential projects with more than 9,000 units that have either launched or are scheduled to be launched this year.
ERA has even expanded its market share to 41.1% in 1H2021 from 38.4% in 1H2020.
These statistics show that there continues to be promising potential for both companies to chalk up continued strong sales.
The central bank is keeping a watchful eye
This growth is not without risks, though.
Singapore’s central bank, the Monetary Authority of Singapore (MAS), is keeping a close watch on property prices.
Thus far, the conclusion is that the property market is not overheated and nothing needs to be done at the moment.
Ravi Menon, MAS’ managing director, remarked that he hoped “the market will continue to remain stable and that we don’t have to make any moves”.
This statement signals the willingness of MAS to step in should prices surge too much or too quickly.
Investors should see this as a positive move.
Under the watchful eye of the central bank, prices can increase at a slower and more sustainable pace, allowing both property brokerage firms to continue to prosper.
Get Smart: A buoyant market
Interest rates remain low globally as many countries seek to re-start their sputtering economies.
As central banks print more money to prop up businesses, this money is seeking higher returns and a sizable portion will naturally flow into real estate.
The market is set to remain buoyant for now, benefitting PropNex and APAC Realty.
Although policy risk remains, the chance of another round of cooling measures appears to be low in the short term.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
