Singapore Property Sector

Kim Eng on 26 Jan 2012

Mass market exuberance still reigns


Few signs of demand letting up. Merely a month after the introduction of the Additional Buyer’s Stamp Duty (ABSD), anecdotal evidence suggests that the sense of caution experienced following the implementation was just temporary as both homebuyers and property developers appear to be resuming their activities. In our opinion, such a phenomenon may not last and we remain neutral on the Singaporebased developers, preferring the diversified property plays instead.

Developers still vying for land. From the three residential Government Land Sales tenders that closed after the introduction of the ABSD, it appears that developers are still looking to acquire welllocated sites. While the Mt. Vernon Road tender suggests that developers are pricing in a potential drop in property prices, the two most recent tenders for the sites at Clementi Ave 6 and Simon Road still attracted healthy interest of 8 and 12 bids respectively. We also noted that foreign developers continue to be actively bidding for land, perhaps less daunted by the medium-term uncertainty.

Emboldened by recent launches. Recent launches of mass market projects and Executive Condominiums (ECs) continue to see healthy demand despite growing concerns over the economy. For example, Far East Organization’s The Hillier at Hillview (~$1,200 psf) and Watertown at Punggol Central (~$1,100 psf) have both attracted strong demand. In the near-term, demand for attractive suburban projects may continue to be supported by the benign interest rate environment and our economists are not expecting interest rates to hike up markedly before 2H13. This may have encouraged some developers to continue to acquire sites to meet upgraders’ demand.

Risky bet against time. The developers with mass market projects on their hands may be facing a race against time to launch their recently acquired projects. We estimate that from the sites that have been sold under the GLS which have yet to be launched, the potential supply that may come onto the market over the next 12 months stands at 12,248 condominium units and 2,495 EC units, and counting. Developers could find it harder to find suitable windows of opportunity to launch projects.

ASPs and sales volume set to fall. Faced with a more daunting income/employment outlook due to economic concerns and ample housing options, we believe that upgraders will inadvertently adopt greater caution when reality bites, potentially by mid-2012. That may then lead to the precipitation of mass market prices of up to 20% by end-2013. We also expect primary market sales to be reduced to
11,000 units p.a. for 2012 and 2013.

Remain neutral on Singapore-centric names. Despite our expectations of lower ASPs and sales volume, we remain neutral on the stocks with significant exposure to the Singapore residential market as the downside risks have been priced in. Maintain HOLD on City Developments Limited (TP:$9.38), Wing Tai (TP:$0.97), SC Global (TP:$1.05) and Ho Bee (TP:$1.01), while we prefer the more diversified players like CapitaLand (TP:$3.21) and Keppel Land (TP:$3.30).