Singapore Residential Sector - OCBC Investment 2019-07-02: Resilient Prices But Challenges Remain

Singapore Residential Sector - OCBC Investment Research | SGinvestors.io CAPITALAND LIMITED (SGX:C31) UOL GROUP LIMITED (SGX:U14)

Singapore Residential Sector - Resilient Prices But Challenges Remain

  • 2Q19 URA flash estimate: +1.3% q-o-q.
  • All segments showed positive growth.
  • Mortgage loans fell y-o-y in May.

URA’s 2Q19 flash estimate rebounded 1.3% q-o-q

  • URA’s flash estimate (transactions up till mid-Jun) for the private residential property price index (PPI) showed an increase of 1.3% on a q-o-q basis for 2Q19. This marked a reversal following two straight quarters of decline (1Q19: -0.7%; 4Q18: -0.1% q-o-q).
  • The uptick in 2Q19 has resulted in overall PPI growth of 0.6% YTD, and suggests to us that the property cooling measures put in place are unlikely to be loosened in the foreseeable future. Projects which could have helped to boost the PPI include Amber Park by CITY DEVELOPMENTS LIMITED (SGX:C09), Riviere by FRASERS PROPERTY LIMITED (SGX:TQ5) and The Gazania by SINGHAIYI GROUP LTD. (SGX:5H0).
  • The final 2Q19 figure to be released on 26 Jul should be well supported when transactions from Sustained Land and its consortium’s Sky Everton are included. The project sold ~39% of its 262 units during its 22-23 Jun weekend launch at an ASP of S$2,550 psf.

RCR showed the largest growth; all segments came in positive

  • All segments registered positive price growth in 2Q19, with landed property prices increasing mildly by 0.2% q-o-q, while the non-landed segment saw a boost of 1.6%.
  • Within the non-landed segment, the Rest of Central Region (RCR) fared the best, rising 3.0%, while growth for the Core Central Region (CCR) and Outside Central Region (OCR) came in at +1.5% and +0.5% q-o-q, respectively.
  • Separately, on the public housing front, HDB’s flash estimate for the 2Q19 Resale Price Index (RSI) remained subdued, slipping 0.2% q-o-q, marking the fourth consecutive quarter of decline. The current premium between the URA private residential PPI and the HDB RSI now stands at 15.1%, versus the historical average gap of 11.4% since 1Q05.

Housing loans y-o-y growth slipped to negative territory

  • Notwithstanding the positive price momentum, we believe it may be too early to call for a bottom, as the operating environment remains challenging. Based on housing loans data from the Monetary Authority of Singapore, overall housing and bridging loans aggregated S$202.5b for the month of May. This was the fifth consecutive m-o-m dip, reflecting a relatively cautious demand environment.
  • Furthermore, there are also concerns over rising unsold inventory levels, which stood at 37.8k units (including ECs), as at end-1Q19. This is above the long-term historical average of 32.4k units since 1Q07.
  • We maintain our private residential price growth forecast of -3% to +2% for 2019, but pare our primary transactions volume projection to 8k-10k from 10k-12k as the number of new launches this year may not pan out as aggressively as previously expected.
  • Maintain NEUTRAL on the Singapore residential sector, with UOL GROUP LIMITED (SGX:U14) [Fair Value: S$8.50] and CAPITALAND LIMITED (SGX:C31) [Fair Value: S$4.04] as our preferred sector picks. Both names have performed well in terms of share price movements, garnering total returns of 27.8% and 21.3% YTD, versus the MSCI Asia ex. Japan Real Estate Index’s 18.8% return during the same period.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-07-02
SGX Stock Analyst Report BUY MAINTAIN BUY 4.040 SAME 4.040