Real Estate - RHB Invest 2018-08-16: Expect Slower Volumes, Not A Standstill

Real Estate - RHB Securities Research 2018-08-16: Expect Slower Volumes, Not A Standstill Singapore Real Estate Sector CAPITALAND LIMITED SGX:C31 CITY DEVELOPMENTS LIMITED SGX:C09 APAC REALTY LIMITED SGX:CLN

Real Estate - Expect Slower Volumes, Not A Standstill

  • We remain NEUTRAL on the property sector, with CapitaLand as our Top Pick. After a surge in July private home sales (+56% y-o-y, +164% m-o-m), volumes are expected to slow down in the coming months, impacted by cooling measures. However, we do not expect volumes to plummet as:
    1. Developers have moderated their selling price expectations;
    2. Impact from cooling measures on first-time buyers is limited;
    3. ABSD penalties limit developers’ ability to hold on to their inventory.
  • Overall, we expect a 10% decline in primary volumes for 2018, with a flattish price outlook for 2H18.

Spike in July sales no surprise; expect a quieter August.

  • July primary volumes hit a 15-month high (1,724 units excluding executive condominiums (EC)) largely on strong demand (c.1,000 units were sold on 5 Jul) ahead of the implementation of cooling measures on 6 Jul. The top sellers were Riverfront Residences (628 units, median price: SGD1,307psf), Park Colonial (429 units, SGD1,756psf) and Stirling Residences (339 units, SGD1,746psf).
  • We expect sales volumes to dip by more than 50% m-o-m in August, due to seasonal factors (the Hungry Ghost festival) and the lack of new launches.

Buying demand still healthy at right pricing levels.

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  • Despite cooling measures, sales in new launches have been holding up, as developers are lowering their selling price expectations and offering attractive discounts to move inventory. This was evident in the recent launch of The Tre Ver, where 140 of 200 units were sold on the first day of launch on attractive pricing, compared to existing launches.
  • We also note that developers have limited room to defer the launches or hold on to inventory, as they face hefty additional buyers stamp duty (ABSD) penalties if they fail to sell the entire project within five years.
  • Overall, we expect primary transaction volume for 2018 to range 9,000-11,000 units. Property prices – likely to stay flattish in 2H18 – are expected to grow modestly by 0-2% next year, as there is very little room for developers to lower prices due to the high land banking costs.
  • Key factors supporting the property market are replacement demand and liquidity from en bloc sales and stable job market conditions.
  • Key threats include a sharp spike in interest rates, weakening demand for rental properties and escalating trade war tensions.

Upcoming new launches to look out for.

  • Jadescape (1,206 units) by Qingjian Realty Group which is the redevelopment of former Shunfu Ville is expected to be launched by end-August or early September. We believe the project should see a decent response, on the lack of new launches in the area and the low land acquisition cost (SGD747psfppr). This allows the developer some pricing flexibility.
  • Oxley’s redevelopment of the former Mayfair Gardens (387 units) is also expected to hit the market early next month.

Land bids ahead will set the tone for developers’ price outlook.

  • In 2H18 there are about five sites (including a white site) that will be made available via a confirmed list in the government land sales (GLS) programme. Despite recent measures, we expect to see healthy bidding interest for the sites on their strong location attributes (ie close to MRT stations and routes) and amenities – albeit at moderated prices. The bids for these sites should throw some light on developers’ expectation of property prices ahead.


  • With the muted growth in property price expectations, we see no near-term catalysts for developers with larger exposure to Singapore’s residential sector.
  • Our Top Pick is CapitaLand as it remains minimally impacted by the recent cooling measures, and benefits from the continued build-up in its recurring income base and diversified exposure.
  • We also maintain our BUY recommendation on APAC Realty as we expect the lower volumes to be partially offset by higher developer commissions and its healthy dividend yields.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-08-16
SGX Stock Analyst Report BUY Maintain BUY 3.950 Same 3.950
NEUTRAL Maintain NEUTRAL 10.400 Same 10.400
BUY Maintain BUY 0.770 Same 0.770