Real estate may be a weak asset in the United States, but other markets provide plenty of opportunities for gains. One of these markets is Singapore. Due to its business friendly legal structure, low taxation, first world conveniences, and a strong economy, Singapore has been going through a boom in immigration and real estate development. Also, the limited size of the city-state creates a restraint on supply that keeps rents high. The best way for investors to capitalize on Singapore real estate in both the residential and commercial sectors is through buying Capitaland (OTCPK:CLLDY). Capitaland stands out to me because of its dominant market share, ownership of Singapore's top properties, and healthy financial position.
The main bullish case for Capitaland is its ownership of some of the most premium properties in Singapore. Examples of the include Six Battery Road, Raffles City Singapore, and a variety of office buildings leased to major banks and multinational corporations that fill up the country's central business district. They also develop high-end condo complexes throughout the island and operate 17 malls in Singapore. Malls have much more value there than in the U.S. due to restrictions on online shopping (such no Amazon.com), heat and humidity that drives people indoors, and a local culture that revolves around shopping and conspicuous consumption to a degree that is higher than the West. Capitaland also owns Clarke Quay, which is one of most popular nightlife hot spots in Singapore. A growing population, foreign capital inflows into Singapore, and limited space in the country will continue to keep real estate values high in the long run. A Chinese hard landing-related pullback or crash is a buying opportunity.
At current price levels, Capitaland also provides value. First, the stock trades at just 76% of book value. In addition, the company has a 40% net profit margin and earnings growth estimated to be 10% over the next five years.
Overall, I am long-term bullish on Capitaland because it controls premium real estate in a land-restricted country. Singapore is one of the hearts of global commerce and finance, and its favorable business environment in the heart of emerging Southeast Asia will help the country maintain this status. Capitaland is the best way to play Singapore real estate.
Price action and government policy, however, implies waiting before buying. The stock is currently a falling knife and stress in the Chinese economy (18% of Capitaland's properties are in China) will provide more short-term distress to all equities and real estate in the region. Also, the Singapore government has been building increasing amounts of state-owned housing with the intent to bring down prices and may introduce more policies to slow down the real estate market. I will update investors when the buy signal arrives.
The only ADR available is through the pink sheets under the ticker CLLDY.PK. Capitaland can also be bought directly on the Singapore exchange under the ticker CATL for customers of Interactive Brokers.