Property Development & Inventory - CIMB Research 2016-01-18: Quiet December

CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI

Property Devt & Invt - Quiet December

Low activity in Dec, primary home sales a reflection of absence of new launches and year-end lull.
Primary home sales appear to be stabilising, expect similar level of transactions in 2016, with prices sliding by another 5-8%.
Adopt stock picking strategy. Top picks City Dev and Capitaland. Maintain Overweight.

Not surprisingly, Dec15’s primary residential sales, including ECs, came in at 508 units, +25% yoy but -46% mom.
The low level of transactions was a function of the absence of new launches and year-end lull. Excluding The Poiz Residences, which saw a further take up of 9% of total units, sales at most developments were modest.
Not including ECs, there were only 384 units changing hands during this period.

The latest transactions brought total primary home sales for 2015 to 10,325 and 7,716 (excl ECs), which is 13% and 2% higher yoy respectively. These volume levels appear to have reverted back to the long-term mean and indicate that the market could have found its post-cooling measure equilibrium.
Secondary market transactions have also picked up marginally from a year ago.

Going into 2016, we expect similar volumes, between the 8,000-9,000 units as demand remains checked by in-place cooling measures such as higher transaction costs and financing limits.
We believe the case for lifting these restrictive measures may be less given the current dampened economic environment, still high mortgage debt-to-GDP level, and rising interest rates.
Potential supply of land from government land sales have also been reduced.

We expect private residential prices to continue to slide by 5-8% in 2016 as private and public housing completions peak this year. Around 27,149 and 17,664 units of private housing and ECs are scheduled for completion in 2016 and 2017, respectively.
Rising vacancies, falling rents and negative yield spreads are likely to be a drag on the price outlook.

Developer stocks are now trading at 42% below RNAV. We believe much of the subdued outlook has been priced in and expect developer stocks to remain rangebound in the near term.
We like Capitaland for its diversified business model and ROE-boosting capital recycling activities. ADD, TP S$4.06.
We think valuations for City Dev is cheap at 0.78x P/BV. Potential special dividend post its recent commercial PPS transaction could be a near-term share price catalyst. ADD, TP S$10.30.

LOCK Mun Yee CIMB Securities | Yeo Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-01-18

CIMB Securities SGX Stock Analyst Report BUY Maintain BUY 10.30 Same 10.30

BUY Maintain BUY 4.06 Same 4.06