Singapore Strategy 2019 ~ Real Estate Sector - RHB Invest 2018-12-14: Weighed Down By Measures And Rising Interest Rates

Singapore Strategy 2019 ~ Real Estate Sector - RHB Research | SGinvestors.io CAPITALAND LIMITED (SGX:C31) APAC REALTY LIMITED (SGX:CLN)

Singapore Strategy 2019 ~ Real Estate Sector - Weighed Down By Measures And Rising Interest Rates

  • We expect property prices to stay relatively flattish at 0-2% in 2019, as:
    1. Buyers remain price-sensitive post cooling measures;
    2. A strong launch pipeline provides many choices and limits developers’ pricing power;
    3. Rising interest rate environment.
    This is balanced by a positive economic outlook, strong household balance sheet and en bloc liquidity, which acts as supporting factors for prices.
  • We remain NEUTRAL on the sector and prefer diversified plays with dividend yield support. CapitaLand (SGX:C31) is our Top Pick.



Challenging year ahead for residential sector.

  • 2019 is likely to see a flurry of new launches hitting the market from projects that have been sold via en-bloc sales in 2H17/2018. Based on listed agency PropNex (SGX:OYY) estimates, 50 projects or 19,139 units are available in the launch pipeline – which is more than double the number of units expected to be sold in 2018.
  • The flurry of new launches is likely to provide plenty of choices for buyers and limit developers’ pricing power. This, coupled with recent policy measures and rising interest rates, are expected to keep property prices in check.
  • Still, developers are not likely to lower the prices below current levels as their balance sheets remain strong and most of the sites have been acquired at higher prices vs existing launches. Thus, we expect prices to see limited growth of 0-2% in 2019.


Cut back in GLS supply supports price sustainability.

  • The Government’s recent announcement to cut back 1H19 land supply by 20% (vs 2H18) is positive for long-term price sustainability and prevents further build-up in the supply pipeline.


Project pricing the key for volumes ahead.

  • Despite the cooling measures, sales of new launches have been holding up, as developers are adjusting their price expectations and have been offering discounts to move inventory. We expect a similar trend in 2019, with projects with the right attributes and pricing continue attracting strong buying demand.
  • Developers are also bound by the stringent additional buyers stamp duty regulations, which requires them to sell all the units in the project within five years from acquisition or face hefty fines of 15% of land cost. Overall, we expect a primary sales volume of 8,000-10,000 units for 2019.


Resale volumes likely to fare better.

  • On the private resale market, we believe units currently held back on the expectation of potential en bloc sales should be released back, with the en bloc cycle nearing its end. This should support resale volumes in 2019.
  • Housing and Development Board (HDB) resale volumes are also likely to fare better in 2019 as more built-to-order (BTO) flats completed in 2013/2014 become eligible for resale.


Developer’s margins to stay thin.

  • The challenging market conditions mentioned above are likely to compel developers to focus more on volumes and less on margins. As such, we expect margins to remain squeezed, at around 5- 10%, compared to around 15- 20% seen in the past.


Prefer diversified plays.

  • 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 a higher recurring income base and diversified exposure. See report: CapitaLand - Active Efforts To Boost ROEs.
  • We also maintain our BUY call on APAC Realty (SGX:CLN) as volumes are anticipated to remain relatively steady.





Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-12-14
SGX Stock Analyst Report BUY MAINTAIN BUY 4.000 SAME 4.000
BUY MAINTAIN BUY 0.720 SAME 0.720





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