APAC Realty & Propnex 3Q Results : Catching A Breather

Everything you can think of seems to be going up in price nowadays.

But the one that really hits home (literally!) would be the exorbitant prices of all types of properties across Singapore.

Since the pandemic started, a home-buying frenzy has taken hold of Singaporeans, causing a surge in prices across all property types.

While home-sellers and developers are clearly benefiting from this mania, major brokerage agencies such as APAC Realty and Propnex have also made the most out of this situation.

With revenue, net profit, and transaction volumes rising across all fronts, it looks to be an excellent year for these brokerage agencies.

Is there a way for us investors to tap into this market segment and ride the property wave? Or are we already too late to the party?

In this article, we’ll evaluate the current state of the residential property market, and what factors let to it’s overwhelming demand.

Moreover, with the property industry being relatively cyclical, we believe that it might be possible to foresee future transaction volumes and price trends as well.

A Stellar Performance

In the recent Q3 results for both agencies, management has been quick to point out strong increments in revenue, net profit, and transaction volumes for the 9 months of 2021.

These are impressive metrics indeed. With their majority market share, both agencies have succeeded at capturing demand and have seen total revenue jump two-fold for this year.

Similarly, net profit after taxes have surged to 115% (Propnex), and 139% (APAC Realty) respectively, clearly showing the strong boost to the bottom lines of both companies.

The commonly stated rhetoric is that the ongoing strong performance is perpetuated by the incessant demand for homes, higher property prices, construction delays, and an accommodating monetary policy.

The end-result of all these factors is a surge in transaction volumes for residential properties in Singapore. Which these property brokerages help to facilitate and also derive their income from.

In recent months, an increasing number of news sources are also reporting on en-bloc sales attempts which could further affect the current sales momentum.

New Condo Sales

If we scrutinize the business models of APAC Realty and Propnex, we can clearly see how higher transaction volumes boost their profitability.

For the nine months of 2021, these volumes have demonstrated explosive growth due to the home-buying mania.

Let’s take a closer look.

For the primary private residential market i.e the sales volume of new private property, the market has seen transaction volumes reach over 10 thousand units till date.

This numbers have already matched or outperformed transaction volumes for the past 7 years. With a couple more projects left till the end of 2021, total transaction volume looks to be somewhere around 12-13 thousand units.

Furthermore, the strong take-up of new private properties have cause the unsold market inventory of leftover units to fall considerably, leading some to believe that supply is tightening.

Commission fees for new private properties are also generally more favorable for agents, ranging from 1-3% for mainstream units, to upwards of 7-8% for higher quantum or unique units.

This in return, boosts the revenue and profits of the overarching brokerage agency who manages the agents involved in the sale.

The Resale Market

Another key player contributing to transaction volumes is the resale private property segment.

Transaction volumes for this segment have reached 15 thousand units for 2021 till date, which is by far one of the highest transaction volumes for the past decade.

As many homeowners take this chance to realize the gains on their private properties, other HDB upgraders are also entering this segment in search of more desirable homes as well.

While the resale segment may not be as lucrative as project marketing, it still contributes a significant amount of revenue to property agents and brokers.

This segment also has the benefit of being readily available, sidestepping the penalty of construction delays for other properties.

Higher And Higher

If you’re unaware, both the private and HDB price indexes have reached new highs recently due to a assortment of factors impacting the market.

This is a boon for property agents and brokerage agencies as steep property prices alongside a commission-based model implies higher fees for middlemen.

In fact, higher prices influence the property market by encouraging owners to lock in capital gains by selling their current residential property, and then look to purchase another property as a replacement.

This cycle is a self-sustaining one which constantly fuels property price momentum and transaction volumes, leading to even higher prices.

Construction Delays

The pandemic has impacted the construction industry greatly, causing delays to both private and public housing projects.

It’s likely that if you’re a young couple urgently searching for a nest, you would be forced to consider resale properties as the viable solution. This apparent squeeze on supply is one of the main culprits causing property prices to increase.

HDB is on track to launch about 17,000 BTO flats in 2021, which is higher than the 14,600 and 16,800 flats launched in 2019 and 2020 respectively. They have also made clear the intention to release an even higher number of flats for 2022.

The increasing of BTO supply is one of the clear answers to stabilize the property market, by letting supply & demand economics balance out property prices.

However this method can have certain drawbacks which might only show themselves further down the road, due to the extended timeline of such an initiative.

Arriving At Crossroads

It seems that the local bourse doesn’t think highly of the future prospects for these property agencies. Share prices for both companies trade at unassuming valuations at the moment.

This is despite both enterprises offering strong fundamentals, an asset-light business model, and attractive dividend payouts.

With property prices continuing to climb, and transaction volumes stagnating, the strong performance for both companies looks set to hit the brakes within the next few years.

When we throw in the risk of cooling measures by the government to keep prices palatable, we can see why the stock market isn’t so keen.

However, the residential property market is known to be unpredictable at times, even as monetary policy continues to stay accommodating.

All things considered, we feel that even as the excitement in the property market continues to play out, it’s future is still very much undecided.

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