Flash estimates for the URA private residential index showed a 0.8% QoQ decline in 4Q13. We highlight that, except for a flattish -0.1% movement in 1Q12, this is the first time the index has fell meaningfully since the last financial crisis (3Q08 to 2Q09). On a parallel note, mass market prices, a key driver for the housing sector during the liquidity-driven recovery, are also showing signs of losing momentum; flash estimates for Outside Central Region (“OCR”) prices fell 0.6% QoQ in 4Q13 – for the first time since 2Q09 as well. We believe physical prices will enter into bear territory over FY14-15 as the residential sector continues to suffer from the dual impact of existing housing curbs and an onerous physical completion pipeline. Maintain HOLD with an unchanged fair value estimate of S$9.98 (30% RNAV disc.). While execution from management continues to be spot-on and the balance sheet remains strong, we foresee increased uncertainties ahead as the group grapples with weakening fundamentals in its core domestic residential space.
First QoQ decline in mass market prices since 2Q09
Flash estimates for the URA private residential index showed a 0.8% QoQ decline in 4Q13. We highlight that, except for a flattish -0.1% movement in 1Q12, this is the first time the index has fell meaningfully since the last financial crisis (3Q08 to 2Q09). On a parallel note, mass market prices, a key driver for the housing sector during the liquidity-driven recovery, are also showing signs of losing momentum; flash estimates for Outside Central Region (“OCR”) prices fell 0.6% QoQ in 4Q13 – for the first time since 2Q09 as well. While the broad-based price dips in 4Q13 have been widely anticipated by the market and therefore likely already priced into equities, we believe physical prices will enter into bear territory over FY14-15 as the residential sector continues to suffer from the dual impact of existing housing curbs affecting buyer demand and an onerous physical completion pipeline, which would pressure vacancy rates and rental levels. In addition, despite fairly firm fundamental buyer demand currently, we caution that expectations of falling prices can bite into buyer sentiments as investors hold back purchases.
Preferring to “err on caution” for land-banking
CDL sits on significant unrecognized revenues from sold residential units but the rate of sales booked ahead will soften as due to fewer launches and softer performances. In terms of land replenishment, we also anticipate a more conservative stance as management has indicated that it prefers to “err on caution” going forward. The group is focused on developing its overseas growth engines in London and China and, in particular, is actively pursuing further acquisition opportunities in London after acquiring 28 Pavilion Road in Knightsbridge last year.
Maintain HOLD
Maintain HOLD with an unchanged fair value estimate of S$9.98 (30% RNAV disc.). While execution from management continues to be spot-on and the balance sheet remains strong, we foresee increased uncertainties ahead as the group grapples with weakening fundamentals in its core domestic residential space.
Flash estimates for the URA private residential index showed a 0.8% QoQ decline in 4Q13. We highlight that, except for a flattish -0.1% movement in 1Q12, this is the first time the index has fell meaningfully since the last financial crisis (3Q08 to 2Q09). On a parallel note, mass market prices, a key driver for the housing sector during the liquidity-driven recovery, are also showing signs of losing momentum; flash estimates for Outside Central Region (“OCR”) prices fell 0.6% QoQ in 4Q13 – for the first time since 2Q09 as well. While the broad-based price dips in 4Q13 have been widely anticipated by the market and therefore likely already priced into equities, we believe physical prices will enter into bear territory over FY14-15 as the residential sector continues to suffer from the dual impact of existing housing curbs affecting buyer demand and an onerous physical completion pipeline, which would pressure vacancy rates and rental levels. In addition, despite fairly firm fundamental buyer demand currently, we caution that expectations of falling prices can bite into buyer sentiments as investors hold back purchases.
Preferring to “err on caution” for land-banking
CDL sits on significant unrecognized revenues from sold residential units but the rate of sales booked ahead will soften as due to fewer launches and softer performances. In terms of land replenishment, we also anticipate a more conservative stance as management has indicated that it prefers to “err on caution” going forward. The group is focused on developing its overseas growth engines in London and China and, in particular, is actively pursuing further acquisition opportunities in London after acquiring 28 Pavilion Road in Knightsbridge last year.
Maintain HOLD
Maintain HOLD with an unchanged fair value estimate of S$9.98 (30% RNAV disc.). While execution from management continues to be spot-on and the balance sheet remains strong, we foresee increased uncertainties ahead as the group grapples with weakening fundamentals in its core domestic residential space.
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