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INVESTMENT bank UBS reckons prospects for Singapore's property sector are the best ever.

Going up: UBS expects hotel room rates to keep increasing in the next three years, with tourist arrivals growing at a faster rate of 5-7 per cent per annum, but hotel rooms growing by around 2 per cent per annum

In its July issue of Singapore Analyser, the bank identifies City Developments, CapitaLand, The Ascott Group, Suntec Reit, CapitaMall Property Trust and CapitaCommercial Trust as its top picks in the sector. These six stocks especially are expected to do well on the back of better takings in the hotel, retail, office and residential sectors.

For the residential sector, UBS expects the high-end to continue improving, with prices appreciating 5-10 per cent - after rising 15-20 per cent in the past 18 months. 'This is driven by a robust rental market and influx of foreign demand for prime residential sites,' say analysts Charles Neo and Regina Lim.

Similarly, prices are projected to grow in the office market. UBS thinks the shortage of office space will support a rise in rentals from the current $5.60 psf per month to exceed the 1996-peak of $10 psf per month. Island-wide occupancy is also expected to continue rising and reach the 1995 peak of 94 per cent.

Retailers will also have cause to cheer, UBS predicts. 'We estimate retail sales to increase 3-4 per cent per annum in the next five years,' it says. ' Given the expected 5-7 per cent per annum growth in tourist arrivals and 10 per cent per annum growth in tourist expenditure, we expect tourist expenditure on shopping to increase from 12 per cent of total retail sales currently to 16 per cent by 2010.'

But retailers will be paying higher rents to mall owners. 'In the next three years, there is little new retail supply in the Central Area and we expect retail rentals to increase 3-5 per cent per annum,' UBS says.

However, from 2009, about 2 million sq ft of retail space will be developed in Orchard Road and the Marina Bay integrated resort, leading to the likelihood of the new retail sites in Orchard Road canibalising niche high-end retailers from the adjacent Ngee Ann City and Wisma Atria.

UBS also expects hotel room rates to keep increasing with more visitor arrivals. 'With tourist arrivals growing 5-7 per cent per annum but hotel rooms growing by around 2 per cent per annum until 2009, we expect hotel occupancies to be very tight and that hotel room rates should increase steadily over the next three years,' it says. 'Current hotel room rates are still very competitive, especially against comparable cities in Asia.'

Despite optimism on all fronts, UBS still has a 'neutral' call on the real estate sector in Singapore. Developers and Reits remain the sectors most sensitive to concerns of substantially higher US interest rates.

The bank is more optimistic about the financial and diversified industrial (which includes offshore) sectors, with 'overweight' calls on both. Together with property, technology and telecoms are rated 'neutral', while media and transport are rated 'underweight'.