Property Development & Inventory - CGS-CIMB Research 2020-10-16: Home Sales Remain Healthy In Sep20

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Property Development & Inventory - Home Sales Remain Healthy In Sep20

Healthy private home sales in Sep

  • According to the Urban Redevelopment Authority, primary home sales for Sep 2020 came in at 1,385 units, or 1,329 units excluding Executive Condominiums (ECs). Sep sales volume was up 4.6% y-o-y and 5.6% higher than sales volume in Aug 2020.
  • About two thirds of the monthly sales volume came from the Rest of Central Region (RCR) projects, boosted by new launches such as Penrose (389 units sold). Ongoing developments such as Treasure at Tampines also continued to see good take-up. Suburban projects made up another 29% of sales while projects in the Core Central Region (CCR) accounted for the balance 6% of monthly sales.

9M20 home sales at 85-95% of our 2020F projections

  • For 9M20, primary sales dipped 4.2% y-o-y to 7,687 units.
  • 8M20 sales made up 85-95% of our 2020F transaction volume projections of 8,000-9,000 units.
  • Meanwhile, according to Singapore Real Estate Exchange (SRX), the non-landed resale market also continued to improve with 1,286 units changing hands in Sep 2020 (+0.4% m-o-m, +62.8% y-o-y), led by strong transaction volumes in the Outside Central Region.

Flash estimate for 3Q20 private home prices ticked up q-o-q

  • In terms of prices, according to Urban Redevelopment Authority’s flash estimate for 3Q20 residential price index is 0.8% higher q-o-q, buoyed by uplift in non-landed prices in the RCR and OCR. This nudged private home prices to 0.1% above end-2019 levels.
  • Meanwhile, the 3Q20 HDB Resale price index showed a 1.4% q-o-q pick up and is 1.7% above end-2019 level.
  • Overall, with residential market holding up well, private home prices could likely trend closer to the higher end of our 0% to -5% projection for 2020F, despite the weak macro outlook.
  • We still expect prices to stay range-bound in 2020F as we believe that the slower macro outlook and ample supply imply that developers would have to price their projects competitively in order to move inventory.

Reiterate sector Overweight

  • Developer stocks’ valuations are inexpensive, trading at 55% discount to RNAV, close to the -2 s.d. discount to long-term 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 into any opportunities during this slower cycle. See PDF report attached below for Singapore listed developers peer comparison table.
  • Our preferred picks are CapitaLand (SGX:C31), City Developments (SGX:C09), UOL Group (SGX:U14).
  • Sector re-rating catalysts: good sell-through rates for new launches.
  • Downside risks: prolonged drag from the COVID-19 outbreak, and weaker-than-expected macro outlook which could dampen demand for big-ticket items such as housing.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-16
SGX Stock Analyst Report ADD MAINTAIN ADD 7.290 SAME 7.290