Singapore Property - Maybank Kim Eng 2017-08-25: Resurgent Enbloc Market Could Promote Rational Land-Banking

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Singapore Property - Resurgent Enbloc Market Could Promote Rational Land-Banking

Opportunities plenty to replenish land bank 

• We believe investors are increasingly concerned that escalating land prices could lead to a margin squeeze for property developers. 
• While it is a valid concern, we opine that the resurgent enbloc market offers alternative land banking opportunities for developers and could ease upwards pressure on land prices. Furthermore, it effectively front-loads demand and pushes out supply. 
• We raised our TP for UOL to SGD9.43 (from SGD9.05) to reflect higher TP for UOB (UOB SP, BUY, TP SGD26.40) and market value of UIC (UIC SP, Not Rated). See report: UOL Group - Onwards and Upwards.
• UOL and CityDev continue to be the best large-cap picks to an impending rebound in Singapore’s property prices. For investors with lower liquidity thresholds, recently initiated GuocoLand offers compelling relative value with improving fundamentals. 
• Maintain POSITIVE view on developers.

Escalating land prices a concern 

• The recent pick up in new home sales has led to a sharp fall in unsold inventory in the market. The 16,900 unsold units in the market today is less than half of the 40,400 at its peak in 2011. This represents just 1.6 years of supply at the current annual run-rate of about 10,300 units.
• While the favourable shift in the inventory-to-sales ratio would give developers scope to raise ASPs, it has also led to aggressive land bids given shrinking landbank amongst developers. Consequently, investors are increasingly concerned that escalating land prices could lead to a potential margin squeeze for developers.

Resurgent enbloc market could ease upwards pressure on land prices 

• Over SGD3b of deals have been concluded so far and media reports suggest that another 30 properties are in various stages of the enbloc process. Of these, six deals in the market today could potentially lift sales value by another SGD2.3b and add 4,600 units to the pipeline if completed. 
• We believe this offers alternative land-banking opportunities for developers and should ease upwards pressure on land prices. 
• Apart from the private land market, the six sites on the 2H17 GLS confirmed list will add 2,800 units to inventory in the year ahead. Another 5,000 units on the reserve list could also be triggered by developers.

Positive feedback loop: Front-loading demand and pushing out supply 

• Furthermore, we see a positive feedback loop from this development. Every household displaced from the enbloc market would be on the lookout for a new property, which effectively front-loads demand and pushes out supply. 
• The 11 deals concluded so far will already lead to the demolition of 1,600 units from the existing housing stock in the year ahead. The other six deals in the market today imply that another 1,300 units could potentially be removed if completed.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-25

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.43 Up 9.050

BUY Maintain BUY 12.050 Same 12.050

BUY Maintain BUY 2.750 Same 2.750

BUY Maintain BUY 3.000 Same 3.000

HOLD Maintain HOLD 3.750 Same 3.750