Singapore Property - Maybank Kim Eng Research 2016-04-01: Small Home Price Falls; Low Rates to Support Prices

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Singapore Property - Small Home Price Falls; Low Rates to Support Prices

Flash estimates of home prices indicate that price falls remain small.
A recent reversal of interest rates should support prices, we believe. This implies that a review of cooling measures may not be a near-term catalyst.
Instead, we expect the market to focus on value-unlocking deals that could narrow discounts to physical assets.

CityDev is the best proxy for this, in our opinion, with its AUM target of SGD5b by 2018.
Remain POSITIVE on developers with CityDev (BUY, TP SGD9.04) as our top pick.

URA’s flash estimate of the private residential price index was down 0.7% QoQ to 140.6 in 1Q16.
Prices in the Core Central Region (CCR) rose 0.4% QoQ, their first uptick in 12 quarters. In the Rest of Central Region (RCR) and Outside Central Region (OCR), prices slid 0.4% and 0.9% QoQ respectively.
The URA PPI is now down for the 10th consecutive quarter and 9.1% off its 3Q13 peak.
Flash estimates for HDB resale prices were down only 0.1% QoQ, suggesting resilience.

Benchmark interest rates reversed course in recent weeks as rate-hike expectations were tempered. The 3M SIBOR, a widely used mortgage benchmark, were 8bps off its recent peak to 1.17%.
Yields for Singapore’s 10-year government bonds similarly retreated to just 1.84%. Their decline in the last three months was a significant 76bps.

Low interest rates should support property prices, in our view. This means that a review of cooling measures may not be on the cards to provide a near-term catalyst.
The sector continues to trade at material discounts to physical assets and we believe developers will continue to seek deals to unlock underlying property values.
Sales of mature commercial properties are the low-hanging fruits, though we also see opportunities in the residential market.
Time pressure from looming QC and ABSD deadlines could motivate more developers to pursue bulk sales or structure deals for high-end homes, in our view.
We think CityDev is the best proxy for this, given its AUM target of SGD5b by 2018.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-01

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