PROPERTY shares may offer good value for investors this year despite the sector's current struggles, a recent report suggests.
The possible upside may come from potential privatisation attempts by some firms and the prospect that the Government may ease cooling measures, Maybank Kim Eng said in the report.
Giving the property sector an "overweight" call, Maybank Kim Eng analyst Derrick Heng noted that developers with unsold units may consider de-listing to avoid penalties under the Qualifying Certificate (QC) rules.
As part of the rules, listed developers - which are technically defined as foreign developers - with unsold units within two years of a project's completion must pay an extension charge.
If affected developers seek to privatise, shareholders could expect strong valuation support from offers as recent privatisations have indicated, he noted.
"(The developer sector) trades at 0.7 times price to book value (P/BV) and a 39 per cent discount to revalued net asset value, well below recent privatisation offers of 1.06 times P/BV and 19 per cent discounts," he said.
Already, two developers have sought to privatise this year.
In January, Keppel Land's parent Keppel Corp and Popular launched cash offers that were 20 per cent to 40 per cent higher than their trading prices.
More may join the ranks, and Wing Tai would be the sector's top pick against this backdrop, Mr Heng said. "As Wing Tai has a large number of unsold units at its projects, Le Nouvel and Nouvel 18, we believe it is most susceptible to (QC) penalties…
"We believe the odds for privatisation are rising for Wing Tai, which trades at a much larger 52 per cent discount to its RNAV (revalued net asset value) than the 6 per cent average in the privatisation offers of Popular and SC Global," he said. SC Global was privatised in 2012.
To date, Wing Tai has not made any disclosures to suggest a delisting is imminent.
The privatisation of Ho Bee also cannot be ruled out as it has a public float of only 21 per cent, Mr Heng added.
Under exchange rules, if the public float - the proportion of shares in public hands and readily tradeable - falls below 10 per cent, the firm must be delisted.
Another factor is the possible easing of cooling measures.
This may also work in favour of shares of developers, particularly those with an exposure to the high-end segment.
Mr Heng said: "We believe property cooling measures implemented in recent years could be partially unwound this year.
"Home prices have tipped over, with private and public home prices down 4.9 per cent and 8.3 per cent from respective peaks in 2014's fourth quarter.
"Now that high-end home prices have declined to artificially suppressed levels, we believe the Government may review measures for this market first… We think the additional buyer's stamp duty quantum for foreigners could be relaxed, with the relaxation targeted at high-end homes."
Both Wing Tai and Ho Bee would also stand to benefit from this potential easing.
Wing Tai's residential properties form 60 per cent of its asset value, the majority of which are high-end properties that will benefit from a rebound in the segment. Ho Bee's Sentosa inventory may also see revived investor demand.
City Developments is another counter worth looking at, Mr Heng noted. Its move to establish new financial platforms - such as the recent profit participation scheme for its Sentosa assets - may unlock further value, while its high-end inventories are also poised for any market improvement.