Singapore Property - DBS Research 2016-06-09: Keeping supply low

CAPITALAND LIMITED C31.SI CITY DEVELOPMENTS LIMITED C09.SI UOL GROUP LIMITED U14.SI

Singapore Property - Keeping supply low

Slight uptick in units available for bidding
Expected strong interest in selected sites given unique attributes
Prefer developers with strong balance sheets and diversified earnings base: Pick CAPL, UOL

The Urban Redevelopment Authority (URA) has launched 7,500 residential units available for bidding in the 2H16 GLS list, marginally higher (additional 130 units) compared to 1H2016 GLS list.
In 1H16, four sites (1,900 units) have been awarded while one site (500 units) has been launched and in the midst of the bidding process. These were replaced by two new sites (1,000 units) in the confirmed list and two new sites (1,200 units) in the reserve list.
The new sites were mainly in OCR region (Serangoon) mainly to complement the upcoming Bidadari HDB estate.
Based on the 2H16 GLS list, majority of the units (62%) are located in OCR while 21% and 17% are located in RCR and CCR respectively. In addition, URA has reduced the commercial space by more than half (12,500 sqm) in the Holland Road and Beach Road commercial sites (both on 2H16 reserve list).
We note a cut in total EC units available.

We read the marginal increase in supply as a signal that the government will want to see more moderation in price through offering alternatives to potential home buyers. We believe that overall residential prices will likely remain on a downtrend.
We see more downside risk for residential prices in the outside central region (OCR), driven mainly by higher expected vacancy rates from a spike in supply completions over 2015-2106. Medium risk will hinge on the potential squeeze in rental spreads from falling rental rates coupled with higher risk of interest rates.
With prices only declining at close to 10% from the peak, we believe that prices have not corrected sufficiently for the government to take any pre- emptive action to relax measures, of which an early easing could lead to an unintended rise in prices.

With declining land-banking opportunities in Singapore, we expect tender bids to remain competitive. We note that there are new sites which we believe will be of interest such as the Perumal Road (opposite Farrer Park MRT) and Upper Serangoon Road (next to upcoming Bidadari HDB development and Woodleigh MRT).
In the meantime, we expect Singapore developers to continue diversifying their earnings base by expanding their geographic reach and focus on growing their commercial portfolios in order to build a recurring income base.
We like developers with diversified and multiple income streams that will enable them to remain resilient in the current down-cycle.
Picks are CapitaLand, UOL Group.

Derek TAN DBS Vickers | Rachel Lih Rui TAN DBS Vickers | http://www.dbsvickers.com/ 2016-06-09

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.70 Same 3.70

BUY Maintain BUY 9.60 Same 9.60

BUY Maintain BUY 7.39 Same 7.39