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PropNex: Riding the Wave

PropNex: Riding the Wave

The Singapore residential real estate market has been buoyant despite the pandemic which left a dent in most sectors of the economies last year.

Despite the circuit breaker,  real estate activity was still very healthy with developers selling 10,024 private housing units in 2020, surpassing the 9,912 units in 2019 by 1.1%.

I personally believe that the residential real estate market this year will continue to be healthy given that more young couples are looking to buy their first house, and foreigners are also looking for a place to park their money – which in this case, Singapore looks like an attractive destination.

With this trend, naturally, PropNex caught my eye as my next investment.

PropNex is an integrated real estate services group with core businesses in 1. real estate brokerage, 2. training, 3. property management, and 4. real estate consultancy. Their primary business is the provision of real estate brokerage services which comprise of real estate agency and project marketing services.

Why I like PropNex and think that this stock will do well at least for this year:

A. Demand remains strong

How many times have we seen young couples trying to BTO for flats and couldn’t secure a unit? An ex-colleague of mine told me that she and her other half tried BTO-ing for Tengah and they failed! Talk about our minister saying that “they must continue to enable young Singaporeans to own their homes and fulfil their aspirations” in one of the Business Times articles…

I believe this will drive up the resale demand as young couples prefer not to wait and get tired of balloting for a unit. For those who manage to get a unit and even in a prime, mature estate, lucky you! I heard it is as good as striking lottery!

In addition, we have seen a lot of affluent foreign buyers buying properties in Singapore over the last year. One real estate agent even profited $400,000 in commissions in the month of August 2020 where he sold several units of a condominium to several wealthy Chinese (even without them viewing the physical property!).

In fact, the Business Times have reported that bungalows buying activity in Sentosa Cove have increased to 13 transactions in 2020, from just 4 in 2019. I expect more foreign buying to happen in 2021 as they shift their focus from Hong Kong to Singapore.

Lastly, real estate remains one of the preferred investment choices for the affluent as they are likely to give more stable returns in the long term.

B. Supply remains limited

We don’t have to be geniuses to know that land is scarce in Singapore. In fact, land sales have declined rapidly over the past few years.

With a cap on supply, prices have continued to increase. Private home prices rose by 2.2% for the whole of last year. Even HDB increased the BTO prices in some areas. For example, an article by 99.co mentioned that HDB increased the 5-room BTO prices in Woodlands by almost 20%! That is quite significant given that one of HDB’s aim is to make housing affordable for Singaporeans.

With a (potential) increase in housing prices in the coming year, PropNex, can only benefit from it.

Source: Business Times

Moving on to the company itself, PropNex has established its mark in the Singapore residential space.

C. Largest property agency with ~8,700 real estate salespersons

Based on information from the Council for Estate Agencies, PropNex has the most number of real estate salespersons / agents of approximately 8,700. It has plans to grow its sales force to 10,000 within the coming two years.

Naturally with the sheer size of its sales force, it has a higher probability to close more deals, which will directly contribute to its revenue.

D. Biggest market share of 45% versus competitors

PropNex also has the biggest market share among all other real estate agencies of 45% and they are plan to grow it to 55-60% by year 2022-2023. Market share is important because they will be able to secure more exclusive listings.

I recall that when I was young, ERA (Apac Realty) used to be in the mind’s of people but this has gradually changed hands over the years.

E. Asset light model with a strong cash position

Companies like PropNex operate on an asset-light model. It is also a cash-rich business with an approximate S$94.8m net cash position. I personally like this kind of companies very much and they are better able to tide through crises.

F. Share buyback is a sign of confidence in the firm

Based on Smart Insider, Mohamed Ismail Gafoore, Co-founder, Executive Chairman and CEO, and Kelvin Fong, Executive Director, have been buying back shares of PropNex. To me, this is a sign of confidence in the firm and there still will be runway for the stock to go higher.

Source: Smart Insider, 15 Jan 2021

G. PropNex invest heavily in its people and technology

PropNex also invests heavily in its salesperson, regularly providing them with training on how to close sales deals and stay up to date with the property market. They take provide in constantly refreshing their training curriculum to allow their salesperson to stay relevant in such a competitive market. With a huge number of real estate salesperson in Singapore, it is important to differentiate themselves in terms of their knowledge.

In addition, PropNex also continues to invest in technology to stay ahead of the curve. PropNex’s virtual webinars last year, using creative ways to showcase new project launches to prospective buyers, has proven its effectiveness.

I believe for a company that is willing to invest in two important aspects of a business ie. People and Technology, will go very far as it will increase its retention rate of its salesperson.

Source: Edgeprop. The use of technology has accelerated their market share.

Of course, there will be some risk involved and one of it I can think of is the cooling measures implemented by the government. However, I don’t this will affect organic buyers as young couples look to purchase their first home and genuine upgraders purchase their first private property.

What are some other stocks that you think will play out this year given the current situation? Share with us in the comments box below.

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Best wishes,

Finance and Toast

 



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