SINGAPORE real estate is ‘exceptionally attractive’ from a yield and capital appreciation perspective, says Bank Sarasin chief investment officer Burkhard Varnholt.
He dismisses fears of a bubble, even in the wake of new measures here to quell speculation.
Last Friday, the government announced the imposition of a new seller’s stamp duty for those buying residential properties from Feb 20, and a reduction in the loan to value limit for home loans from 90 per cent to 80 per cent. New private home sales had rebounded sharply last month.
‘Even though concern for monetary tightening in Asia is widespread, fundamentally I continue to view markets like Singapore as exceptionally attractive . . . I think real estate prices can double over the next three to five years and maintain attractive yields.
‘That’s based on comparing property prices in Singapore against global peers, and the expected capital inflow from the rest of Asia into the Singapore market in the next few years.’
Dr Varnholt says the crisis in Greece has made central bankers in developed markets wary of how stimulus is withdrawn.
‘The combination of cheap money and strong growth in the east, as well as weakness in the west, with the sustainable recovery in corporate and non-financial earnings and balance sheets – I think those make a powerful case for real assets, for real estate and equities.’
His preference in Asia, he adds, is for real estate over equities ‘because for the first time in many years, Asian equities have become more expensive than the MSCI World’.
For Sarasin clients, he is recommending real estate funds, as single real estate purchases are ’something the clients should do themselves because of the lack of liquidity’.
‘Travelling the world, I can’t see a bubble yet and for the foreseeable future in a place like Singapore . . . which has the quality of life, business friendliness, political and economic stability.’
Dr Varnholt remains positive on the prospects for emerging markets, but the bank’s ‘roadmap’ for investments differs markedly from last year when its balanced portfolio’s exposure to emerging markets were at a high of 55 to 60 per cent.
This year, the allocation has been cut drastically to about 10 per cent, thanks to valuation concerns. ‘We shifted our equity exposure from emerging markets to super-competitive western blue chip companies that benefit from cheap currencies and leverage on the boom in Asia and the emerging markets,’ he says, citing companies such as Coca-Cola and Nestle.
These defensive companies pay an ‘extraordinarily’ attractive dividend yield against low corporate and sovereign bond yields.
He sees a number of key risks in the horizon. One is a ’super’ spike in commodity prices caused by resources bottlenecks. A second risk is China’s ‘ballooning’ money supply growth which is likely to prompt more tightening measures.
Meanwhile, China’s reserves held in US bonds have shifted substantially to short dated bonds. In this context, the bank maintains a weighting in gold as an insurance against a dollar crisis, even though the latter is not its base case.
A third risk, is that the housing market globally is likely to have more downside as in many markets, prices look expensive based on price to income and price to rent ratios.
Still, the current cycle remains positive for equities, he says. The recovery in non-financial earnings will lead into 2011. ‘The environment is not too hot or too cold. It’s historically one of the best environments for equities,’ he says.
Source: Business Times, 24 Feb 2010