Property Sector

Kim Eng on 9 Mar 2012

Mass market is not cool for now. The implementation of the 3-10% Additional Buyer’s Stamp Duty (ABSD) last December took the market by surprise, but its impact on the take-up of mass market projects has not been as dire as feared. Foreigners, the target of the latest housing curbs, did buy fewer units in January but the slack was picked up by Singaporeans and PRs, who constituted about 90% of buyers in recent launches. However, we think it is too early to turn positive on residential developers.

Developer sales in January beat expectation. A total of 2,077 homes (including 205 Executive Condominium units) were sold in January, a sharp increase from the 670 units moved in the previous month. A staggering 96% were units priced below $1,500 psf, suggesting that nearly all of the action was in the mass market segment with very few sales in the mid- and high-end segments. Mixed developments were the top-selling projects, such as Watertown ($1,169 psf) and The Hillier ($1,289 psf).

Developers are still landbanking. The first two tenders for 1H12 Government Land Sales (GLS) sites sold well, with seven developers making bids in each tender and top offers that are rather bullish, presumably encouraged by the strong take-up in mass market projects. To recap, the 1H12 GLS programme has a reduced supply of residential land but a bigger allocation to EC sites, yielding 7,020 units (41% EC), down from 8,115 units (14% EC) in 2H11.

Double-edged sword. Though developer sales hit a 14-month high in January, there were weak patches in the market, such as the slow take-up of Riversound Residence and Archipelago. In our view, January’s strong sales are unsustainable but if the trend persists, the government may be prompted to roll out more curbs, such as the recent tweaking of second-timer allocation for new HDB and Executive Condominium (EC) units. But if the strong sales do taper off, developers will be stuck with costly landbank. Either way it is bad news for them.

Prefer undervalued diversified players. We prefer the more diversified players and reiterate our Buy calls on CapitaLand and Keppel Land. We are neutral on the pure residential developers in Singapore. Maintain Hold on Wing Tai, SC Global and Ho Bee, all of which predominantly operate in the high-end segment where sales currently are at a standstill.