We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87].
Forecasting lower prices over FY14-15 but crash is unlikely
We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this.
Latent demand exists at lower price points
In May-14, despite a 92% MoM pop in monthly sales to 1,528 units, the take-up rate of 82% in the month was lower on both a MoM and YoY basis (125% in Apr-14; 97% in May-13). The eight new launches showed a diverse range of performances, with take-up rates ranging from 10% to 98%. Amongst the four new mass-market launches, in particular, we found that developers that were willing to price their projects competitively, such as Coco Palms (98% of launched units sold), performed better.
Our base case: FY14 primary sales to dip 33% to 10k units
We forecast FY14 primary private home sales to dip 33% to 10k units, and see prices in mass-market segment to be more at risk versus the mid-tier and high end. A positive catalyst over the mid-term could be the reversal of certain government curbs once headline prices (the URA price index) shows a decline in excess of ~10%. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87].
We forecast residential prices to dip 10%-20% over 2014 – 2015 but see a price crash in excess of 20% to be unlikely, even after accounting for the anticipated physical over-supply and interest rate uptrend ahead. One key argument against a crash is that we believe there is a high price elasticity of demand in the market largely due to a prolonged period of physical undersupply from 2004 – 2012. Simply put, significantly more buyers will likely come into the market at lower price points, which will slow the rate of decline as prices soften. Several key data-points had previously corroborated our view – firm sales at d’Leedon and Sky Habitat after significant discounts by CapitaLand, and at attractively priced launches such as UOL’s Thomson Three – and we believe the latest set of sale figures in May-14 further supports this.
Latent demand exists at lower price points
In May-14, despite a 92% MoM pop in monthly sales to 1,528 units, the take-up rate of 82% in the month was lower on both a MoM and YoY basis (125% in Apr-14; 97% in May-13). The eight new launches showed a diverse range of performances, with take-up rates ranging from 10% to 98%. Amongst the four new mass-market launches, in particular, we found that developers that were willing to price their projects competitively, such as Coco Palms (98% of launched units sold), performed better.
Our base case: FY14 primary sales to dip 33% to 10k units
We forecast FY14 primary private home sales to dip 33% to 10k units, and see prices in mass-market segment to be more at risk versus the mid-tier and high end. A positive catalyst over the mid-term could be the reversal of certain government curbs once headline prices (the URA price index) shows a decline in excess of ~10%. Our top picks in the developer space are CapitaLand [BUY, FV: S$3.79], Keppel Land [BUY, FV: S$4.09] and OUE [BUY, FV: S$2.87].
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