Buy the businesses that hold the real estate assets rather than the ones that sell them.
That's the message from a growing number of analysts in Singapore who say Reits, or real estate investment trusts, are a better bet than developers in light of the country's recent cooling measures.
For much of 2017 and the first half of this year, Singapore developer stocks had a great run. Rising home prices and climbing sales were among signs that the city-state's residential market was emerging from a deep freeze.
That all changed on July 5, when the Government shocked the industry by imposing a fresh set of curbs that came into effect at midnight the following day.
Now, the trade has reversed. The FTSE Straits Times Reits Index is outperforming a benchmark that tracks developers. Property stocks, which had their best annual gain in five years in 2017, have declined 5.4 per cent since July 5, while Reits are up 0.7 per cent over the same period.
"There's been a lack of interest in developer stocks post the cooling measures and some of that capital has moved out to other sectors," Mr Vijay Natarajan, an analyst at RHB Research Institute Singapore, said in a phone interview. "The market had not expected the severity of the measures announced."
Singapore took renewed steps to cool home prices after they rose more than 7 per cent in the first six months.
Under the new rules, individuals taking out their first housing loan face stricter borrowing limits, meaning they have to stump up more cash upfront. For foreign purchasers of residential property, the additional buyer's stamp duty was increased to 20 per cent from 15 per cent.
That is going to impact home sales and prices. Developers may lower asking prices by as much as 10 per cent following the cooling measures, according to Jefferies Singapore analyst Krishna Guha, who said he prefers Reits post-curbs.
Macroeconomic uncertainties have also kept sentiment subdued for developer stocks, and investors see Reits as a safe haven, according to DBS Group Holdings analysts Mervin Song and Derek Tan.
Among the property trusts, the office sector looks the most attractive, followed by industrial trusts, they said. CapitaLand Commercial Trust - Singapore's largest office landlord - and Ascendas Real Estate Investment Trust are among their top picks.
Low vacancy levels have encouraged office landlords to seek higher rents, with the cost of grade A space rising 4.1 per cent to $10.10 per sq ft a month in the quarter ended June, the fastest pace since the March quarter of 2014, CBRE Group data shows.
Higher rents and low vacancy rates should work to cushion the impact from interest-rate increases, according to Bloomberg Intelligence analysts Patrick Wong and Kristy Hung.
"Developer stocks are subject to high policy risk," Mr Wong said. "Real estate investment demand will further concentrate on the commercial market and support the growth in capital value of commercial properties owned by major landlords."