Singapore Residential Sector - OCBC Investment 2019-01-03: A First Dip Since 2Q17

CAPITALAND LIMITED (SGX:C31) UOL GROUP LIMITED (SGX:U14)

Singapore Residential Sector - A First Dip Since 2Q17

URA’s flash estimate (transactions up till mid-Dec) for the private residential property price index showed a slight decline of 0.1% q-o-q for 4Q18, versus +0.5% in 3Q18. This was also the first sequential dip since 2Q17 (also -0.1% q-o-q).
The drag was driven by landed property prices (-1.8%). Non-landed property prices rose 0.3%, and this can be broken down as follows: the Core Central Region (CCR) slipped 1.5% q-o-q; the Rest of Central Region (RCR) delivered positive growth of 1.8%, while the Outside Central Region (OCR) saw a price increase of 0.8%. Cumulatively, for 2018, private home prices increased 7.9%, and this was a tad shy of our 8%-10% full-year forecast.
In terms of segmental breakdown, the CCR, RCR and OCR registered price growth of 6.2%, 7.4% and 9.5%, respectively, in 2018. Meanwhile, on the public housing front, HDB’s flash estimate for the resale price index (RPI) came in at -0.2% q-o-q, such that 2018’s RPI fell 0.9%.
Given the overall dip in the 4Q18 private residential flash estimate, coupled with the tepid performances of the major regional indices on the first trading day of 2019, it was not surprising to see Singapore developers recording a -0.6% return on 2 Jan (based on the FSTREH Index).

Looking ahead, we remain largely cautious on the near-term outlook of the Singapore residential sector.
As a recap, we had alluded in our recent sector update (please refer to our report titled: “SG Residential Property - Tough Love For A Sustainable Future” published on 5 Dec 2018) on potential negative drivers such as moderating economic growth and continued impact from the property cooling measures, coupled with risks from an expected bumper crop of new launches in 1H19.
The cooling measures have clearly manifested in residential prices. It was also reported yesterday that Singapore’s economy expanded at a slower pace of 2.2% y-o-y in 4Q18, and this fell short of Bloomberg consensus’ 2.5% estimate. GDP growth for 2018 came in at 3.3%, versus the 3.6% growth in 2017.
One silver lining would be the moderation in the Government Land Sales (GLS) programme for 1H19, which is expected to yield ~6,475 private residential units. This is the lowest level since 1H07 (5,475 units).

We maintain our -3% to +2% private residential price growth projection for 2019, as well as our forecast for 10k-12k private sales transactions.
Notwithstanding the current cheap sector valuations, the headline negative price dip in 4Q18 and still soft investor sentiment may continue to curtail the share price performance of the Singapore residential sector in the near-term, in our view.
We are NEUTRAL on the sector, with our preferred sector picks remaining as UOL GROUP LIMITED (SGX:U14) [Rating: BUY; Fair Value: S$8.41] and CAPITALAND LIMITED (SGX:C31) [Rating: BUY; Fair Value: S$3.96].

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2019-01-03

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