Property agencies are benefitting from the pandemic

The property sector has been one of the bright spots for Singapore’s economy in 2021. No doubt, the construction delay as well as the long waiting time for a brand new HDB flat has pushed prospective buyers into the resale market.

This resulted in a rise in resale prices and transaction volumes. From the table below, HDB’s Monthly overall resale volume hit a high of 2,748 units in August and has since declined slightly to 2,586 units in November.

Despite the fluctuating resale volume, resale prices have been on a steady upward trend. From the table below, we started off the year with the Singapore Property Index (“SPI”) at just 141.8. Coming into November, the index has risen to a record high of 157.0.

On the non-landed property front, similar trends are also exhibited in terms of volume and resale price. The index started off the year at just 197.7 and rose to a high of 210.7 in October.

With the continued strong demand and rising prices for both resale HDB flat and condos, property agencies are clearly the biggest beneficiaries from this latest trend as these agencies are able to earn more commission revenue from the higher price and transaction volume.

In this article, we will be looking at Singapore’s two largest property agencies, mainly:

• PropNex Limited (SGX: OYY)
• APAC Realty Limited (SGX: CLN)

1) PropNex Limited (SGX: OYY)

PropNex Limited (“PropNex”) is Singapore’s largest listed group with close to 10,000 sales professionals. As an integrated real estate services group, PropNex’s key business segments include real estate brokerage, training, property management and real estate consultancy.

The Group has an established presence in Singapore’s residential market, even as it continues to expand its suite of real estate services in Singapore and grow operations regionally. PropNex already has presence in Cambodia, Indonesia, Malaysia and Vietnam.

Key Statistics

Total Shareholder Return

For the past 1 year, PropNex’s total shareholder return came in at close to 155%. The bulk of the returns (S$1.03) were from capital appreciation versus that of the dividend payout (S$0.095).

With such a strong run up, this resulted in some form of profit taking, which resulted in a negative return of 4.35% for the past 3 months.

Latest Q3 FY2021 Result

For 3Q FY2021, PropNex’s revenue jumped by 98.8% year-on-year to S$234.4 million, mainly due to higher commission income from agency services and project marketing services.

As a result of the strong topline growth, PropNex’s net profit after tax (“NPAT”) surged by more than 114.2% year-on-year to S$15.48 million.

For 9M FY2021, both PropNex’s revenue and NPAT shot up by close to 100% and 115% respectively on back of the strong sentiment in the property market.

PropNex’s Outlook for the Property Market

For the whole of 2021, PropNex is projecting a total of close to 13,000 private new homes (excluding executive condominiums) and over 18,000 private resale units to be transacted. The figures represent an increase of 30% from 9,982 new homes sold in 2020, and a more than 67% increase from the 10,729 resale properties transacted in 2020. Overall private home prices are expected to rise 6% to 7%. In addition, the dwindling unsold stock may also keep prices resilient given the limited supply.

On the public housing front, the Group is projecting overall HDB resale volume to exceed 30,000 units in 2021, an increase of more than 20% from 2020’s number, largely attributed to the delay in completion of new BTO flats. The strong demand for resale flats will likely continue to support HDB resale prices for the rest of the year and into 2022. PropNex expects HDB resale prices to grow by 11% to 12% for the whole of 2021.

2) APAC Realty Limited (SGX: CLN)

APAC Realty Limited (“APAC Realty”) is a leading real estate services provider, holding the exclusive ERA regional master franchise rights for 17 countries in Asia Pacific. Through its ERA franchisee network, the Group has one of the largest brand footprints in Asia with more than 18,400 trusted advisors across 645 offices and is one of the largest ERA Member Brokers globally by transaction value.

The Group has a market-leading position in the Singapore real estate brokerage business through its wholly owned subsidiary ERA Realty Network Pte Ltd (“ERA Realty”).

Key Statistics

Total Shareholder Return

For the past 1 year, APAC Realty’s total shareholder return came in at 108%, which is lower than PropNex. Similarly, majority of the return was mainly generated by capital appreciation.

The recent profit taking from this strong run up in its share price resulted in a negative return of 7.19% for APAC Realty for the past 3 months.

Latest 9M FY2021 Business Update

For 9M FY2021, APAC Realty’s revenue grew by 111% year-on-year to S$543.8 million. The higher revenue can be largely attributed to an increase in transaction volume of residential properties in the new homes and resale segments in this period. This increase in sales volume was driven mainly by local buyers, young couples and HDB upgraders amid strong global liquidity and low interest rate environment.

As a result of the surge in its topline, APAC Realty’s net profit after tax jumped by close to 140% year-on-year to S$26.1 million. To put things into perspective, it's 9M FY2021 net profit after tax already exceeded its FY2017’s net profit after tax of S$25.9 million.

Conclusion

With the on-going demand hike in the resale market for both HDB flats and private condos, both PropNex and APAC Realty are slated to achieve a decent set of financial results moving forward.

On the other hand, the government has noticed the recent sharp run up in property prices. Hence, one of the biggest risks could be the introduction of new cooling measures, with the aim of moderating the property prices to more manageable levels.

In turn, the cooling measures may result in lower transaction volumes and cause an adverse impact on the financials of the property agencies going forward.

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