Real Estate - RHB Invest 2017-01-03: Headwinds Persist But The Bottom Is In Sight

Real Estate - RHB Invest 2017-01-03: Headwinds Persist But The Bottom Is In Sight Real Estate Sector 2017 Outlook CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI

Real Estate - Headwinds Persist But The Bottom Is In Sight

  • We expect property prices to continue declining by 3-7% in 2017 due to: 
    1. Weak economic growth and unstable job market conditions; 
    2. Rising vacancy rates; 
    3. Developers’ incentives to cut prices to avoid ABSD and QC charges.
  • We do not expect any relaxation of property cooling measures in the near term as prices have not corrected meaningfully while volumes have picked up recently. 
  • A potential bottoming out of the property market could emerge by end-2017, with the supply glut easing out.



Prices to stay on a downtrend in 2017. 

  • We expect the overall residential market to continue remain weak in 2017, with prices declining by 3-7%. 
  • Key factors aiding the price decline are: developers’ incentives to cut prices and clear inventory to avoid ABSD charges and QC penalties, increasing vacancy rates and a weak economic outlook and job market. 
  • YTD-3Q16, Singapore property prices have slipped by 2.6%, based on official Urban Redevelopment Authority (URA) data. 
  • While property prices have fallen by about 10.8% since peaking in 3Q13, they are still 45% higher than the trough (2Q09) seen during the GFC.


Bargain-hunting and developers’ incentives could boost volumes. 

  • Sales volumes could see a boost in 2017 as more buyers enter into the market with a wide range of discounts and choices available. 
  • Overall, we expect private home sales (excluding executive condominiums (ECs)) to range 7,500-10,000 units in 2017. Volumes are already seeing a slight boost in 2016, with YTD-Oct 2016 primary sales volumes at 7,132 units, implying a 10% YoY increase.


Government unlikely to relax cooling measures in the near term. 

  • To recap, the Government introduced eight rounds of cooling measures before the property price climb eventually relented in 3Q13. 
  • We believe the Government may take a more cautious approach and is unlikely to relax any measures as property prices are still holding up and haven’t fallen meaningfully, primary and secondary sales volumes have picked up and land prices remain elevated, based on recent land tender bids that indicate developers are bullish. As such, any premature withdrawal of cooling measures could result in a spurt in the property prices.


Projects with right attributes would continue to attract buyers. 

  • Amidst an overall lull in the property market, we did notice a dual-paced market (mass and mid segment) with some of the new launches managing to stand out and generate strong buying interest. Common attributes of such projects include attractive pricing compared to nearby projects in the vicinity; an attractive mix of units with affordable overall quantum and innovative concepts; location and proximity to MRT stations; mixed use developments and access to amenities and aggressive marketing strategies by developers.


New launches to watch out for. 

  • We expect the above-mentioned trend to continue in 2017 with attractive new launches standing out, with strong sales amid an overall lull in the residential sector. Some of the key launches to watch out for include The Clement Canopy, Park Place Residences (for the mass to mid-range market) and Martin Place Site and South Beach Residences for the high-end segment.


Prefer developers trading at deep discounts with stock-specific catalysts.

  • Notwithstanding the tough residential market conditions, we find reasons to be optimistic on the property sector stocks. 
  • Most developers are currently trading at deep discounts to their RNAVs – despite having strong balance sheets and limited unsold stock as well as diversifying overseas. A downward adjustment in land prices would enable the stronger players to be opportunistic, replenish their land banks and begin a new earnings cycle.


Supply pressures to ease by end-2017, resulting in better balance. 

  • The supply of private homes is expected to peak in 2016, with nearly 20,516 homes expected to be completed by the end of the year compared to 5-year and 10-year averages of 13,841 units and 9,809 units respectively.
  • In comparison, average demand over the last five and 10 years stood at 11,114 units and 9,085 units respectively. Vacancy rates have been rising in tandem and currently stand at 8.7%. We expect vacancy rates to continue to rise and peak around 10% before easing.
  • We expect the supply glut to ease post 2017, with the expected completion of 8,884 units over the next three years (50% below the 2012-2015 average of 19,531 units). This would lead to a better demand-supply balance and a likely bottoming of property prices.







Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-01-03
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.360 Same 9.360
NEUTRAL Maintain NEUTRAL 3.150 Same 3.150



Advertisement




MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......


ANALYSTS SAY


loading.......