Property Development & Inventory - CGS-CIMB Research 2020-05-15: Low Home Sales In April

Property Development & Inventory - CGS-CIMB Research | SGinvestors.io CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09) UOL GROUP LIMITED (SGX:U14)

Property Development & Inventory - Low Home Sales In April

Lower Apr home sales

  • According to the Urban Redevelopment Authority (URA), primary home sales for Apr 2020 came in at 293 units, or 277 units excluding executive condominiums (ECs). This represents a decline of 58% m-o-m and 62% y-o-y, and is not unexpected given the start of the nation's Covid-19 circuit breaker period from 7 Apr.
  • Core Central Region (CCR) sales made up the highest proportion of monthly sales, at 37%, boosted by Chip Eng Seng (SGX:C29)’s Kopar at Newton, where 83 units changed hands at a median of S$2,241psf.

2020F sales volume to trend closer to lower end of 8,000 units

  • In 4M20, primary sales totalled 2,533 units (-5.6% y-o-y), with 2,709 new units launched. 4M20 sales made up 28-31%, and track closer to the lower end of our 2020F transaction volume projections of 8,000-9,000 units. We think May home sales will continue to be modest due to the extension of circuit breaker to 1 Jun.
  • On 13 May 2020, the Ministry of Law extended the Covid-19 (Temporary Measures) Bill to cover buyers who have entered into option to purchase (OTP), sale and purchase (S&P), or lease agreements for residential properties. The contracts must have been entered into before 25 Mar 2020, with contractual performance due on or after 1 Feb 2020, and covers only contracts between buyers and private developers or the Housing Development Board; it does not cover agreements made between individuals. We believe this measure would help affected genuine buyers to reach amicable settlements with developers, for their contractual obligations.

Expect private home prices to range between 0% to -5% for 2020F

  • The URA 1Q20 residential price index showed a 1% decline q-o-q with prices of properties in the CCR showing a steeper 2.2% decline q-o-q vs. the 0.4-0.5% decline for projects in the suburban and city fringe locations. A total of 38 new projects with c.13,000-14,000 new units are scheduled to be launched in 2020.
  • We expect developers would likely have to price their projects competitively. As such, we tweak down our price projection, we now expect prices to be flat or decline 5% y-o-y in 2020F.

Reiterate sector Overweight

  • Developers’ valuations are inexpensive, trading at 58% discount to RNAV on average, close to 2 s.d. below 20-year mean. Our strategy for developers would be to prefer those with high recurring cashflow base and strong balance sheets that would enable them to tap any opportunities during this slower cycle.
  • Our preferred picks are CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14). Sector upside risks: good sell-through rates for new launches.
  • Downside risks: prolonged drag from the coronavirus outbreak, and weaker-than-expected macro outlook which could dampen demand for big-ticket items such as housing.
  • See attached PDF report for peer comparison of Singapore Developer stocks.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-15
SGX Stock Analyst Report ADD MAINTAIN ADD 3.520 SAME 3.520