Property Development & Inventory - CIMB Research 2017-01-16: Stabilising sales

Property Development & Inventory - CIMB Research 2017-01-16: Stabilising sales Singapore Property Developers CAPITALAND LIMITED C31.SI CITY DEVELOPMENTS LIMITED C09.SI UOL GROUP LIMITED U14.SI

Property Development & Inventory - Stabilising sales

  • 2016 home sales, net of ECs, were 8.3% above 2015, the highest since 2013.
  • Declining new inventory and gradual digestion of the new supply are potential catalysts for stock prices.
  • Maintain Overweight. Top picks are UOL, City Dev and Capitaland.

A quieter Dec but still comparable yoy

  • As expected, total Dec sales came in at 580 units or 367 units excluding executive condominiums (ECs). While this was lower mom, the performance was comparable to the year before. Projects that enjoyed better sales include Queen’s Peak, The Santorini and Parc Riviera.
  • As a result, sales in the Outside Central Region (OCR) continued to dominate, accounting for 63% of total home sales in Dec, while those in the Rest of Central Region (RCR) made up another 31%.

2016 sales highest since 2013

  • For 2016, primary home sales totaled 12,432 units, 21% higher yoy. Stripping out ECs, 8,363 units were transacted, up c.8.3% from 2015. This was the highest level since the implementation of the Total Debt Servicing Ratio (TDSR) framework in 2013.

Market to focus on gradual digestion in the residential sector

  • For 2017, we project for residential prices to decline by 3-5% and sales volume to total 8,000-9,000. We expect the market’s attention to focus on the declining inventory as the year progresses, and this will underpin home prices. 
  • In addition, potential stabilisation in the office rental market could also underpin RNAVs.

Stay Overweight; UOL, City Dev and Capitaland our top picks

  • Property stocks have ticked up in recent months on the back of fund inflows as well as newsflow on potential M&A activities. The sector is currently trading at 36% discount to RNAV, a tad higher than the -1 s.d. below mean discount level. At the current level, we think much of the oversupply concerns and rising interest rate environment has been priced in.
  • We think catalysts such as increased land banking could emerge as the residential market digests the high incoming inventory. Hence, we maintain our Overweight call.
  • Our top picks are UOL, City Dev and Capitaland. 
  • Downside risks to our call include rising unemployment rate and a sharp spike in interest rates.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-16
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