Singapore Property

Kim Eng on 19 June 2012

Strong supply, but waning demand? Last week, the Singapore government announced that it will continue to provide enough land under the 2H12 Government Land Sales (GLS) Programme for potentially 14,200 new homes. This was followed by URA’s release of new home sales statistics for the month of May, which revealed that new home sales (excluding ECs) declined by 32% MoM to 1,702 units, snapping a three-month streak in which sales exceeded 2,000 units per month. We see this as supportive of our expectations for a soft-landing in the residential sector.

Addressing the supply-side of the equation. Under the 2H12 GLS Programme, there will be 12 residential sites on the Confirmed List (comprising six EC sites) potentially yielding 7,100 units. On the Reserve List, there are 14 residential sites (no EC sites) which could yield another 7,100 units. In maintaining a similar residential pipeline as in 1H12, we surmise that the government believes developers’ demand for land has not waned, and hopes to provide ample supply to prevent runaway land costs and indirectly keeping property prices down.

But developers are getting picky. While the GLS offers developers a “buffet spread”, developers have also been very selective, with the smaller developers seemingly more active in the tenders. Based on the tenders closed thus far this year, the most recent three have only attracted five bids each, even though pricing still appears fairly optimistic. Looking ahead, we expect fiercer competition only for the more centrally located sites. However, the suburban sites could continue to draw bids from the smaller developers.

Slower new sales in May. The 1,702 new homes sold in May might have been the lowest monthly sale this year, but to put things in perspective, it is still higher than the monthly average of 1,364 units for the whole of 2011. Flo Residence at Punggol was the best-seller, with 266 units (or 79% of the units launched) sold. The only EC launched in May was One Canberra at Yishun, where only 31% of the 665 units have been sold. The luxury end extended its leaden pace, with only ten transactions above SGD3,000 psf reported. One unit at Scotts Square achieved the highest psf price for the month at SGD4,566 psf.

Not ruling out additional measures yet. We do not think the sales volume decline in May is sufficient for us to rule out any further government intervention. Firstly, the 1,702 units sold in May (or 2,057 units including ECs) is not a paltry number in its own right, suggesting that demand is still robust. Secondly, the URA’s flash estimate of the Property Price Index will be announced on 2 July, and may yet surprise on the upside. Last but not least, we still expect some form of regulation tightening over the design of “shoebox” developments.

Too early to turn positive on domestic developers. We reaffirm our preference for the non-residential developers like CapitaMalls Asia, and the more diversified plays like CapitaLand and Keppel Land.