Singapore Residential Sector - OCBC Investment 2020-11-18: Unsurprising Dip In Oct20 New Home Sales

Singapore Residential Sector - OCBC Investment | SGinvestors.io CAPITALAND LIMITED (SGX:C31) CITY DEVELOPMENTS LIMITED (SGX:C09) UOL GROUP LIMITED (SGX:U14)

Singapore Residential Sector - Unsurprising Dip In Oct20 New Home Sales

  • 642 new private residential units (ex. ECs) sold in Oct, representing a dip of 30.8% y-o-y.
  • Decline driven by OTP re-issuance restrictions and lack of new launches.
  • Positive vaccine developments a sentiment boost to developers: Stick with CapitaLand (SGX:C31), add UOL Group (SGX:U14) and move it ahead of City Developments (SGX:C09) as our three preferred sector picks.


New private home sales (ex. ECs) fell in Oct, reversing two months of positive growth

  • URA statistics showed that developers sold 642 private residential units (excluding ECs) for the month of Oct, representing decline of 30.8% y-o-y and 51.7% m-o-m. If we include EC transactions, the y-o-y fall would have been 28.6% on a y-o-y basis.
  • This decline does not come as a surprise to us, as we had flagged out in our last sector report that we expected to see some moderation in Oct and possibly the subsequent months ahead given the effects of URA’s new restrictions on the re-issue of Option to Purchase (OTP) by developers which came into effect from 28 Sep 2020.
  • The lower sales can also be attributed to the fact that there was only one project launched in Oct, which was Hyll on Holland in District 10. 60 out of the 319 units were launched, of which only five were sold at a median ASP of S$2,729 psf.
  • For 10M20, developers have sold 8,021 new private residential units, which is down 4.5% y-o-y. This is on track to meet the upper-end of our full-year forecast of 8,000-9,200 units.
  • Notable upcoming project launches for the remainder of the year include UOL Group/United Industrial Corp's Clavon project in Dec (640 units located near Clementi MRT station), Hoi Hup Realty/Sunway Development’s (660 units) and MCC Land/ZACD/Sin Soon Lee Group’s The Landmark (396 units).


Better selling projects in Oct were located at Outside Central Region

  • The top four selling projects in Oct were all located in the Outside Central Region (OCR), namely The Garden Residences, Treasure at Tampines, Parc Clematis and Midwood. These projects saw sales of 53, 50, 49 and 28 units, respectively.
  • Within the top ten, there were five projects each that were located in the OCR and Rest of Central Region (RCR). Penrose, which was the best seller in Sep during its launch, saw sales of only 15 units in Oct, such that cumulative sales amounted to 402 units, or 71% of its overall project size.
  • Out of the 642 private new home sales sold, only 10.4% are located in the Core Central Region (CCR), while 44.1% and 45.5% are in the RCR and OCR, respectively. CCR projects continue to struggle with soft demand given the higher absolute price points and smaller pool of potential foreign buyers given border restrictions.
  • HDB upgraders, which we believe forms the bulk of the market now, continue to see more appeal in mass market projects and well-located city fringe projects.
  • More recently, an encouraging sign can be seen from the robust sales of mixed-use development The Linq@Beauty World during its weekend launch in mid-Nov. According to The Business Times, 115 out of 120 apartments were sold at average prices between S$2,150 and S$2,200. Majority of the buyers are Singapore citizens and reside in the neighbouring Dairy Farm, Hillview, and Upper Bukit Timah areas.
  • Besides the strong sell-through rate, the ASP achieved was also much higher as compared to nearby projects which were launched recently such as Verdale and Forett at Bukit Timah, although The Linq@Beauty World has a freehold land tenure and located nearer to Beauty World MRT Station. We believe this highlights the fact that there is still ample liquidity and genuine buyers in the market despite the restrictions on OTP re-issuance.
  • According to the Ministry of National Development, there have been 5,500 private housing transactions which had OTPs for the same units re-issued to the same buyers since Jan 2019. On average, close to 70% of these re-issued OTPs had been exercised within six months from the date which the first OTP was issued. Only 1% of the re-issued OTPs eventually lapsed.

Cheap valuations leave room for further re-rating amid positive vaccine and therapeutics developments

  • Positive developments over the COVID-19 vaccine and therapeutics front have undoubtedly boosted investors’ sentiment over the beleaguered real estate sector, given that it has bore the brunt of the debilitating effects of the COVID-19 pandemic.
  • Although the FTSE ST Real Estate Holdings and Development Index (FSTREH) has seen a share price rebound of 9.1% since the Pfizer and BioNTech vaccine news emerged, it has still registered total returns of -19.7% year-to-date (Straits Times Index: -10.4%). We opine that valuations remain cheap. The FSTREH is trading at a forward P/B ratio of 0.43x, which is 1.8 standard deviations (s.d.) below its 10-year average (0.70x).
  • Given the positive sentiment uplift on the potential recovery in the hospitality, retail and office sub-sectors, we stick with CapitaLand (SGX:C31) as our top sector pick. We also add UOL Group (SGX:U14) to our list and move it ahead of City Developments (SGX:C09) in our pecking order.
  • While we continue to be buy-rated on City Developments, we believe there could be some near-term overhang on City Developments's share price until findings from its external financial advisor on its investment in Sincere Property Group is made known by the end of the year.
  • The path to recovery ahead for developers will remain bumpy, but we believe there is room for developers to finally outperform the broader market as the rotation play to value and cyclicals gathers momentum ahead.





OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-18
SGX Stock Analyst Report BUY MAINTAIN BUY 3.750 SAME 3.750
BUY MAINTAIN BUY 9.650 SAME 9.650
BUY MAINTAIN BUY 8.480 SAME 8.480



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