- Property market could get worse. Net supply to inundate market as population growth slows & interest rates rise.
- But banks are unfazed; see no threat of 20% price falls next year.
- Banks also have some protection. Neutral on sector. DBS our top pick.
As a follow-up to our note on 15 Sep, we delve deeper into Singapore’s property market to answer clients’ questions on broad property trends. First, vacancy rates for non-landed private homes, excluding ECs, have risen to 8.3%, their highest in eight years. Second, current seemingly-high rental yield spreads could reverse when interest rates start to rise in 2015. A massive supply of new homes — 63,000, of which 6,038 unsold — could tip the balance in 2015 as household formation tapers off. To absorb the supply, property prices and rentals will have to weaken, a consensus view. Our house forecasts up to a 15% decline in home prices from mid-2014 to end-2015.
But higher foreign purchases not a risk
Foreign investors have been snapping up Singapore homes, accounting for 13.8% of all purchases in 1Q05-4Q11. PRC Chinese and Malaysian buyers are the two largest groups, behind 28% and 26% of 2013’s purchases. High foreign purchases may seem a risk but we believe some protection is offered by lower LTV ratios for these buyers. Singapore’s improved position as one of the international wealth-management centres may also suggest some of these are long-term investments. Default cases at luxury projects are not reflective of the broader market, in our view. Banks tell us they are not concerned and expect a minimal earnings impact.
Neutral unchanged, DBS still our top pick
We still expect the banking sector to escape largely unscathed. That said, sector remains a Neutral, for lack of catalysts. DBS remains our top pick, as it should be best positioned to benefit from rising rates. We stay cautious on OCBC.
No comments:
Post a Comment