Property Development & Inventory - CGS-CIMB Research 2018-10-18: Raising Average Unit Size

CITY DEVELOPMENTS LIMITED (SGX:C09) UOL GROUP LIMITED (SGX:U14) HO BEE LAND LIMITED (SGX:H13)

Property Development & Inventory - Raising Average Unit Size

Urban Redevelopment Authority (URA) has revised guidelines on maximum allowable dwelling units in non-landed residential developments outside the Central Area. Under the new guidelines, the average size of new flats outside the Central Area will have to be at least 85 sqm compared to an average of 70 sqm previously.
In addition, 9 areas, up from 4 previously, will have to comply with the more stringent average requirement of 100 sqm. These include Marine Parade, Joo-Chiat-Mountbatten, Telok Kurau-Jln Eunos, Balestier, Stevens-Chancery, Pasir Panjang, Kovan-How Sun, Shelford and Loyang areas.
These changes will apply to relevant development applications submitted to URA on or after 17 Jan 2019. Applicants that have conducted a Pre-Application Feasibility Study (PAFS) with LTA on or before 17 Oct 18 and their formal development application (excluding Outline Applications) which have been granted or submitted for Provisional Permission before 17 Jan 2019, will not be subject to these changes.

We see this change as having a long-term impact on developers who will now have to factor in these changes to their land acquisition process. With bigger and fewer units, absolute pricing of new units is likely to increase if psf prices are not changed, thus eroding absolute affordability.
In addition, the recent reduction in housing loan limits and higher Additional Buyers’ Stamp Duty may mean that buyers may have to raise their budget or fork out larger downpayments. Hence, we think developers may have to look towards a more modest appreciation for their pricing strategy for future projects.

In the near term, these changes are unlikely to have any impact on UOL, City Developments or CapitaLand as their projects have received or are in the process of being submitted for permissions.
For City Developments, its ongoing developments such as The Opus at Amber Gardens and Whistler Grand at West Coast Vale have received provisional permissions while the jointly-held (with CapitaLand) Sengkang Central parcel is in the submission process.
CapitaLand’s Pearl Bank Apartment site has already been submitted for planning permission.

Property stocks are currently trading at c.49% discount to RNAV, 1 s.d. discount to mean and at 0.63x P/BV. With lack of near-term catalysts, we expect property stocks to trade range-bound in the near term. In terms of stock picks, we prefer diversified developers with a high recurring income base, such as City Developments, UOL and HoBee.
Upside risks include higher-than-expected transaction volumes while downside risks include faster-than-projected interest rate hikes.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-18

SGX Stock Analyst Report ADD MAINTAIN ADD 10.890 SAME 10.890

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