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:
- Buyers remain price-sensitive post cooling measures;
- A strong launch pipeline provides many choices and limits developers’ pricing power;
- Rising interest rate environment.
- 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
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https://www.rhbinvest.com.sg/
2018-12-14
SGX Stock
Analyst Report
4.000
SAME
4.000
0.720
SAME
0.720
RHB Research | Singapore Strategy 2019 ~ Buy Selectively & Stay Defensive
2019 What To Expect & Market Valuation
2019 Singapore Stock Picks & Investment Themes
RHB Research | Singapore Strategy 2019 ~ Sector Outlook
Banks - NIM Widening To Drive Earnings
Consumer Sector - Favour Those Ready To Harvest
Healthcare Sector - Not In The Pinkest Of Health
Plantation Sector - Brace For Another Year Of Unexciting Prices
Real Estate Sector - Weighed Down By Measures And Rising Interest Rates
REITs - RHB Invest 2018-12-20: Selective Yield Plays Likely To Remain In Favour
Technology Sector - Trade War Uncertainty An Overhang On Tech Stocks
Telecommunication Sector - A Short-Term Reprieve?
Small & Mid-Caps - Pick Selectively From Bottom-up
