Real Estate - RHB Invest 2016-09-28: A Dual-Track Property Market

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SINGHAIYI GROUP LTD. 5H0.SI CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI

Real Estate - A Dual-Track Property Market

• Our visit to Forest Woods’s show flat indicated that there is a dual-track property market where some new launches manage to stand out and generate strong interest amid an overall lull in the residential sector. 
• The turnout far exceeded our expectations as buyers flocked on the back of the excellent location and attractive pricing. 
• Overall, we continue to expect property prices to decline by 5-10% over the next one year due to: 
  1. Developers’ incentive to cut prices to avoid additional penalties; 
  2. Rising vacancy rates; 
  3. Unstable job market conditions

Show flat was jam-packed with eager buyers queuing up. 

• We visited the show flat of Forest Woods over the weekend (at around 4pm on 24 Sep, the first day of the soft launch) to gauge on-the-ground buyer sentiment. 
• Forest Woods is a new project in the mass/mid-market segment located in District 19 and within five minutes’ walk to the Serangoon MRT station. 
• While we did expect keen buying interest for the project owing to the quality location and developer’s brand name (a consortium was led by City Developments (CDL)), the strong turnout of over 300 potential buyers during our visit far exceeded our expectation. Demand was so strong that potential buyers had to wait 5-15 minutes in a queue outside, before entering the actual show flat.

Expect strong sales numbers on official launch. 

• Forest Woods (99-year leasehold development) comprises 519 units varying from 1-bedroom units to penthouses). Approximately 60% of the units are below 1,000 sq ft. The indicative ASP was about SGD1,400 psf. Our calculations show that nearly a third of the units are likely to be priced below SGD1m – which partially explained the strong turnout. 
• We understand that there is an early bird discount of 2% which is likely to be removed after the initial week of launch. Only cheques were collected from interested buyers before the expected official launch on 8 Oct.
• Based on our channel checks, nearly 200-300 cheques were collected by the time we reached the show flat. We expect CDL to report strong sales numbers once the project is officially launched.

A hotly contested site. 

• The CDL-led consortium also comprises Hong Leong Holdings and TID Residential Pte Ltd (all parties hold a one-third stake each). lt won the land parcel amid competitive 11 bids on Nov 2015, with a top bid of SGD321m or SGD710 per square foot per plot ratio (psfppr). 
• The top bid was 2.6% higher than the next highest bid, which was made by Singapore Land and UOL. We estimate the all-in breakeven cost to be about SGD1,100-1,150 psfppr. Thus, the expected ASP of SGD 1,400 psf implies a healthy margin of > 20%.

Location and pricing the key recipe to success. 

• Forest Woods’ success, in our view, mainly hinges on its attractive location and good amenities nearby which include the Nex shopping mall and good schools. At 1,400psf, the project is attractively priced compared to some of the recent new launches in the vicinity.

A two-tracked property market emerging. 

• Amidst an overall property market lull, we are seeing signs of a dual-track market (in the mass/mid segments) with some new launches managing to stand out and generating strong buying interest. 
• In comparison, developers with unsold units in older launches are finding it hard to compete amid a current supply overhang. 
• Overall, we expect property prices to decline by 5-10% over the next year, mainly due to: Developers’ incentive to cut prices to avoid additional buyers stamp duty (ABSD) and qualifying certificate (QC) charges, rising vacancy rates on the back of higher completions and subdued demand and an unstable job market. 
• Upside risks to our assumptions are an earlier-than-expected removal of cooling measures and a continued delay in the interest rate hike.

Ten Key Takeaways From Our Show Flat Visit 

• The following are some of our observations we found in common among recent successful project launches: 
  1. Location, Location, Location. Enough has been mentioned about location (close to a MRT station, amenities and schools, etc) playing a key role in Singapore’s property market. In the currently tepid market condition, location is the single most important factor for purchasing a property for both owners and investors, in our view.
  2. Sizing and pricing it right. Another common factor is the developer determining the optimal size of the individual unit types and providing a good spread of units to prospective buyers. Pricing units attractively compared to nearby launches (this depends on land cost) definitely attracts more buyers who are waiting in the sidelines for better value.
  3. Dangling the right incentives. In a price-sensitive market, we find that buyers are more receptive to cash discounts given upfront and deferred payment schemes compared to soft discounts in the form of furnishing vouchers, etc. Recent examples of projects which have moved units post upfront discounts includes D’Leedon, The Interlace and OUE Twin Peaks.
  4. A strong reputation pays off. Having an established and credible track record in building quality homes definitely assures buyers on the end-product and gives such developers an edge over the new entrants. We believe one of the key reasons for the strong turnout at Forest Woods was the reputation of CDL in the market. Our agent also stressed on the quality and track record of the developer as a key selling point.
  5. Differentiating from the crowd. Going that extra mile in providing additional services at the door step seems to attract young couples and the elderly, who may lead busy lives in the city. Forest Woods has a lobby to welcome guests and offers free Wi-Fi facilities. It also offers a wide range of fee-based services for unit holders that includes laundry, housekeeping, private chefs, personal trainers and pet care, etc. Gem Residences is another project which was launched earlier this year with similar add-on services and received a positive response.
  6. Generating the buzz factor in the market. In a sanguine property market, creating a “wow” factor weeks ahead of a launch does attract buyers to visit the show flat, at the least. In case of Forest Woods, we noticed property agents hanging around the Bishan area (my locality) and other housing estates weeks before the soft launch, generating the right buzz in the market.
  7. Timing the launch correctly. Launching the project at the right time does help to avoid the competition in an over-supplied property market. In case of Forest Woods, the project was launched after a seasonally dry period during the Hungry Ghost Month (ie there were no big project launches in last 2 months).
  8. Staying ahead with technology. In an era where technology has been revolutionising the way we live, providing home buyers with in-built remotely controllable “Smart Home” devices does provide an added edge. Forest Woods offers free standard smart home provisioning which allows home owners to remotely control and monitor home devices. There is also optional smart technology devices that could be added on for more tech-savvy buyers.
  9. Reaching out via aggressive marketing activities. Marketing the project through multiple real estate agencies does help to reach out to a wide range of potential buyers in a slow property market. In the case of Forest Woods, we noticed that the project was well marketed by three different property agencies – Huttons Asia Pte Ltd, PropNex Realty and ERA Realty Network Pte Ltd.
  10. Understanding buyers’ needs. Last but not least, “Buyers are the King”. Giving the buyers some flexibility in deciding on the layout of their unit will make the buyer feel more closely associated with their properties. Forest Woods provides buyers with three customised layout options to choose from, and the unit would be built accordingly.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-28

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