Real Estate - RHB Invest 2016-06-16: GEM Residences Steals The Show In May Sales

Real Estate - RHB Invest 2016-06-16: GEM Residences Steals The Show In May Sales CAPITALAND LIMITED C31.SI  CITY DEVELOPMENTS LIMITED C09.SI  SINGHAIYI GROUP LTD 5H0.SI 

Real Estate - GEM Residences Steals The Show In May Sales

  • New home sales (excluding ECs) for May stood at 1,056 units, up 41% MoM and 66% YoY. The sales pick-up came on the back of attractive pricing, aggressive marketing and discounts offered by developers to clear inventory amid tough market conditions. 
  • Looming property deadlines (QC deadline and ABSD charges) have also forced developers to cut prices in order to move sales. We expect more projects to follow suit in offering discounts to attract buyers’ interest. 
  • Overall selling prices are expected to decline by 3-5% in 2016. 
  • Our Top Pick is CDL.

Solid sales at GEM Residences boosted May numbers. 

  • The project, jointly developed by Gamuda (GAM MK, NEUTRAL, MYR5.15), Evia Real Estate Pte and Maxdin Pte Ltd, was the best seller in May with 312 of 578 units (30% of May volumes) sold. Nearly 300 units were reportedly sold on first day of the launch. It has resulted in one of the best take-up rates (54%) among recent new launches since 2015. 
  • Key selling points for strong sales included:
    1. A lack of recent new launches in the nearby vicinity;
    2. Attractive pricing(median ASP SGD1,431psf);
    3. Smaller unit sizes;
    4. Aggressive marketing strategies.
  • Other notable best sellers for May included Stars of Kovan (76 units sold at median ASP of SGD1,414psf) and The Poiz Residences (47 units at SGD1,411psf). 
  • June sales are expected to dip considerably, as we do not see any major new launches during the month.

More high-end projects seen offering discounts to move inventory. 

  • Key high-end projects seen dangling discounts to entice buyers include OUE Twin Peaks (15% discount/option for deferred payments) and Ardmore 3 (15% discount and 15% additional buyers stamp duty (ABSD) rebate). 
  • Anecdotal evidence points to >100 units and 40 units sold at the two respective projects posted discounts. Starlight Suites (along River Valley Close) also saw a bulk sale of 23 units at a 15% discount to initial launch prices. This was as to avoid paying Qualifying Certificate (QC) extension charges. 
  • More recently, CapitaLand (CAPL SP, NEUTRAL, TP: SGD3.15) was seen offering a 15% discount for The Interlace (1,040 units) and d’Leedon (1,715 units) to clear remaining unsold units (10-15% of total) and avoid paying additional extension charges.

Pick up in sales reduces probability of relaxation of cooling measures. 

  • With recent healthy demand seen in some of the new and existing projects post price adjustments, we believe the Government would take a more cautious approach in relaxing any of the cooling measures. 
  • We also note that overall property prices have fallen by only 9% (Urban Redevelopment Authority property price index) since peaking in 3Q13 and are still 48% higher than recent Global Financial Crisis trough (2Q09). As such, any premature withdrawal of cooling measures could result in a spurt in the property prices.

Upcoming new launches to watch out for. 

  • Key new launches to look out for in assessing market demand include Lake Grande (MCL Land Ltd) and Queens Peak (MCC Land Pte Ltd) along Dundee Road and Forestwood Residences at Lorong Lew Lian (Serangoon) (City Developments (CDL) (CIT SP, BUY, TP: SGD9.35), Hong Leong and TID Pte Ltd).

Price discounts would continue to boost sales for rest of the year. 

  • We expect the trend of price discounts to continue for rest of the year, attracting more buyers into the market. 
  • Overall, we expect the private home sales (excluding executive condominiums (ECs)) to range between 7,000-10,000 units and prices to decline by 3-5% in 2016. 
  • YTD private home sales (May) stands at 3,271 units with prices declining by 0.7% in 1Q16. 
  • We maintain NEUTRAL on the sector and prefer well diversified developers with stock specific catalysts. 
  • Our Top Pick for the sector is CDL.

Vijay Natarajan RHB Invest |
http://www.rhbinvest.com.sg/ 2016-06-16
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.15 Same 3.15
BUY Maintain BUY 9.35 Same 9.35
BUY Maintain BUY 0.14 Same 0.14