Property-related stocks looked set for a rebound this week following Shin Kong Life Insurance Co’s (新光人壽) successful auctioning off of one of the two plots of land it owns in Taipei last week, but the rebound would be “weaker than expected,” a Citigroup analyst said in a client note yesterday.
“The fact that there is only one bidder in this auction disappointed us,” Andre Chang (張致竑), an analyst at Citi Investment Research, wrote in the note. “Considering the price, we think the outcome is not the worst — at least it supports the current market price, though it does not surpass it.”
On Friday, Shin Kong Life sold the land to two construction tycoons who represented Cathay Financial Holding Co (國泰金控) and Yuanlih Construction Enterprise Group (元利建設) for NT$4.8 billion (US$157.9 million), a 14.3 percent premium on the floor price of NT$4.2 billion.
The equity research team at Yuanta Securities Co (元大證券) said last week that Shin Kong Life’s successful divestment of its 1,180 ping (3,894m²) plot of land near Da-an Forest Park in Taipei was “a shot in the arm for the housing market.”
“That would also likely lead to a rally in the property-related stocks,” Yuanta Securities said in a research note.
The building material and construction stock index — a gauge of the nation’s property sector development — has plunged 31 percent since President Ma Ying-jeou’s (馬英九) inauguration on May 20, far outpacing a 20.24 percent decline in the benchmark TAIEX index during the same period, Taiwan Stock Exchange data showed.
Cathay Real Estate Development Co (國泰建設), one of the sector’s major players, for example, has seen its share price decline 32.13 percent since Ma’s inauguration to close at NT$15.95 on Friday.
Local financial markets were closed yesterday as Typhoon Fung-wong struck the nation.
Shares of Farglory Land Development Co (遠雄建設) also dropped 23.31 percent to NT$85.9, while Chang Hong Construction Co (長虹建設) fell 24.82 percent to NT$70 and Huaku Construction Co (華固建設) lost 28 percent to NT$90 on Friday.
Despite facing a negative environment, with higher interest rates and a slowing economy, property stocks appeared likely to rebound from the recent plunge as they had dropped too rapidly in too short a period, which makes a correction necessary, analysts said.
“But because of this [auction], the rebound will be weaker than expected because of a lack of catalysts from now until the end of September, when the next wave of projects will begin following Ghost Month,” Chang said.
Local property developers have conventionally scaled down the launch of new projects during “Ghost Month,” as purchasing houses during the month remains a taboo for some potential buyers. Ghost Month falls between Friday and Aug. 30.
In recent months, the property sector has encountered weaker market sentiment and buyer confidence as well as a series of negative pressure on Taichung-based developer Shining Group (鄉林集團), which have resulted in a slowdown of transaction volume and stagnant average selling prices.
Although last week’s auction was likely to lift morale in the sector, Chang said the result seemed to suggest that most developers were still cautious on land prices and the property price outlook.
“This development is at best neutral,” he wrote in the note.
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