Property Singapore - UOB Kay Hian 2016-06-08: Taking The First Bite Of The Bullet

Property Singapore - UOB Kay Hian 2016-06-08: Taking The First Bite Of The Bullet Singapore Property WING TAI HLDGS LTD W05.SI  CITY DEVELOPMENTS LIMITED C09.SI  HO BEE LAND LIMITED H13.SI  GUOCOLAND LIMITED F17.SI  CAPITALAND LIMITED C31.SI 

Property − Singapore: Taking The First Bite Of The Bullet

  • Tantalising discounts and creative schemes have been offered by developers of late, particularly those with projects soon to face extension charges. Our recent showflat visits indicate buyers are beginning to bite, reinforcing our view of a potential price floor forming. 
  • We have reduced our assumption on developers’ RNAVs by up to 5%, mainly factoring in an additional 5-10ppt decline in residential prices which reflect the new clearing price levels. 
  • We remain OVERWEIGHT as we believe the market has over-discounted the negative prospects.


  • We have been seeing nascent signs of life in the high-end market as developers relent on pricing at selected projects, dangling discounts to entice. 
  • Our visits to Ardmore Three and Gramercy Park have reinforced our view of a price floor forming, with units going for as low as S$2,809psf and S$2,380psf respectively.


Target prices reduced by up to 5%, adjusting to the new normal. 

  • We have reduced our assumption on developers’ RNAVs by up to 5%, mainly factoring in an additional 5- 10ppt decline in the residential prices which pencil in the new clearing price levels. 
  • Our assumptions now impute an overall price drop of about 20% from the peak (25% decline from peak for the high-end segment and 15% decline from peak for the mass market).

We remain OVERWEIGHT on the property sector. 

  • We believe the market has over- discounted the negative prospects for the residential segment by pricing in about 50% correction in property prices. We expect a healthy 15-20% correction (from the peak) in property prices beyond which prices should trend in line with GDP growth (2-3%). 
  • We expect developers to rally once there is reasonable indication that prices are unlikely to correct more than 20% on average. 
  • The key re-rating catalyst will be demand-side policy easing by the government.


Priced to sell. 

  • Developers like Wheelock, OUE and CDL have started to offer deeper discounts recently. OUE has also recently gotten creative with OUE Twin Peaks. We note that Ardmore 3 and OUE Twin Peaks are due to face Qualifying Certificate (QC) extension charges in Dec 16 and Feb 17 respectively.
    1. Wheelock’s “ABSD Assistance” package offers a further discount (13-15%), on top of the existing dangled 15% discount and “Deferred Assistance” schemes.
    2. CDL has been offering discounts of up to 18%+2% at the recently opened preview launch of Gramercy Park (TOP 2H16).
    3. Besides offering 12-15% discounts, OUE’s deferred payment schemes allow: a) buyers to pay 80% at the end of the year after 20% is paid upfront, with buyers potentially gaining if the Additional Buyers Stamp Duty (ABSD) is lifted by then, b) buyers after paying 20% upfront, can pay the remaining 80% after 2-3 years.

Nascent signs of price floor formation as buyers take the bait. 

  • The groundswell of interest in high-end projects after the steep 15-30% discounts suggest clearing prices in the range of 20-30%. Our site visit to Wheelock’s Ardmore 3 indicated a surge in home buying sentiment, after last month’s introduction of the “ABSD Assistance” Package, which effectively translates to a 15%+15% discount. Similarly, OUE’s suite of deferred payment schemes (on top of discounts) rolled out in early-April jumpstarted sales at OUE Twin Peaks (73 units moved based on URA caveats) over the last 2 months. Comparatively, only 77 caveats were lodged from Aug 10-Mar 15, prior to OUE’s announced promotion.
  • Our site visit to Ardmore Three indicated that up to 40 units of the 84-unit project had already been snapped up (Mar 16: 7 units sold), with the lowest priced units (around the S$2,560 psf mark factoring in discounts) all sold out. The majority of the buyers are Singaporean. Beyond that, prices are higher for the remaining units (as low as S$2,809, to S$3,037 psf). At higher floors, discounts were cut to 15%+13%, with Wheelock also moving prices upward of S$3,000 psf. Caveats lodged in the URA database reveals 31 units transacted after the 13 April launch of the ABSD promotion, with only 7 units sold previously from Oct 12 to Dec 15.
  • At the 174-unit Gramercy Park preview launch (opened mid-May), units were offered for as little as S$2,308-2,517psf, after factoring in a 18+2% discount. However, attempts at further price reduction were rebuffed, implying CDL may stand firm at these price levels for now. We note QC charges on this project only apply after 2H18, which may explain the developer’s current reluctance to give deeper discounts. We were informed that about 6-7 units have been sold thus far, with Singaporeans making up over half of transactions sold. The slower uptake compared with that for Ardmore Three implies that prices cuts could well be too shallow to appeal to prospective homebuyers, and an effective discount of about 30%, representing prices as low as S$2,000 psf for selected units could possibly trigger the same surge of interest witnessed at Ardmore 3.
  • We note that price levels of about S$2,800 for an Ardmore Three unit would represent a real discount of about 15-20% from previous lofty pricing heights of S$3,000-S$4000 psf. The current price levels on the table still look remarkable for a recently completed project, given that 15-year old Ardmore Park has seen recent unit transactions at S$2,800-2,900 psf.
  • We see nascent signs of a clearing price floor forming, as consumers snap up units that are priced to sell. The tantalising prices at select units and creative schemes may not be indicative of a further tumble in high-end property prices, with developers clearly attempting to drive initial sales momentum particularly for projects due to QC extension charges. However, only select units are priced at jaw dropping levels, and may not be indicative of “fire sales” in the high-end segment, with developers likely pricing to drive initial sales momentum.

Confluence of extension charges and ABSD remission charges on developers come home to roost. 

  • In our piece “Your Ultimate Guide To Extension Charges” released last October, we featured Ardmore Three, OUE Twin Peaks and Gramercy Park among projects posing the highest risk (>50% unsold) to their respective developers. Revisiting last year’s report, we lay out the current sales statuses of these projects and the estimated extension charges likely to be incurred.
  • Recall that since 12 Jan 13, developers have been subject to an ABSD of 15% should they fail to complete and sell all units within 5 years. This was raised from the previous 10% levy in place from 8 Dec 11 to 11 Jan 13, and does not include a further interest of 5% p.a. compounded over the same five-year period.
  • Further compounding the case for price cuts by developers is the likelihood of supply- side pressure from the secondary market this year, as homebuyers who purchased their homes in end-12/early-13 are looking to divest these assets upon the expiration of the Seller’s Stamp Duty (not applicable after 4th year of purchase).

Pick up in high-end transactions. 

  • Based on URA data, transactions of units priced above S$1,950 psf seem to have taken off in recent months. March saw a whopping 411% yoy spike in sales, likely from the Cairnhill Nine launch, with attractively priced units (median S$2,441psf). April transactions expanded 71% yoy, as developers dangled substantial discounts and creative schemes to move units.

Singaporean buyers representing bulk of transactions. 

  • From Jan 15-25 May 16, we note Singaporeans on average accounted for over 55% of transactions above S$1,950 psf, with buyers from China (8.6%), Indonesia (8.3%) and Malaysian (6.5%) bringing up the rear.



Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-06-08
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