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

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. 

Quiet December 

  • 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. 

Homes sales stabilising 

  • 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. 

Transaction volumes to remain checked 

  • 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. 

Incoming supply to be a drag on prices 

  • 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. 

Adopt stock picking strategy 

  • 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