Upcycle P/B values imply 48% upside for ASEAN property sector. Property indices across the region have rebounded by 54% ytd with stocks under our coverage gaining 230% on average since Mar 09 lows. Despite the huge gains, analysis of the past three upcycle P/B multiples still suggests a 48% upside potential for the sector.

Top picks. Thai developers (Asian Property Development/Target: Bt7.40, LPN Development/Target: Bt8.36, Quality Houses/Target: Bt2.16) offer the maximum upside of 75%. Next in line, Singapore developers (Allgreen Properties/Target: S$1.75, City Developments/Target: S$12.70, Ho Bee Investment/Target S$1.65) offer a 57% upside potential. They are followed by Indonesian developers (Bakrieland Development/Target Rp440, Kawasan Industri Jababeka/Target Rp190) with 54% upside. Lastly, Malaysian developers (IGB Corporation/Target: RM2.28, KLCC Property/Target: RM4.00) offer the least upside potential of 9%.

Most upbeat on residential segment. Residential sales in the ASEAN region made a strong comeback in 2Q09 on expectations of an economic recovery, relative stability of the job market despite the steep fall in Gross Domestic Product growth rates, low mortgage rates and a lack of alternative high-yield investments. Price levels rebounded 5-10% qoq in 2Q09 after a 30-50% fall from end-07 peak levels. As the economic recovery gains ground in the coming quarters, we expect sales momentum to pick up and price levels to firm up further on the back of improving liquidity conditions and easy financing options.

Structural transformation lends high degree of sustainability to the current recovery. Across the region, interest rates are drastically low and currencies are fairly stable in comparison to that during the Asian financial crisis. Household affordability levels are relatively high this time round due to the higher income levels, record low mortgage rates and stronger net household wealth. Corporate balance sheets are also a lot stronger. Furthermore, favourable migratory patterns to Asia due to its attractive long-term growth potential help support a sustainable recovery.

Key property catalysts for the region. In Singapore, the two upcoming integrated resorts will boost the country's long-term fundamentals. They are expected to create 50,000 to 60,000 jobs and directly contribute S$5.4b to the Singapore economy, or 2.6% of GDP, by 2015. In Thailand, drawing from the positive impact of supportive government policies in the past, the government's current property incentives are likely to re-rate SETPROP from the current 1.1x P/B to 1.6x. In Indonesia, the disbursement of Rp2.5t housing subsidies allocated in the 2009 budget and the finalisation of the government's ruling on foreign ownership would boost overall demand for property. In Malaysia, recent policy liberalisation measures such as the removal of property gains tax and the relaxation of rules on property purchases by foreigners should have a positive effect on the property sector, like what happened in the past.