Property Development & Inventory - CGS-CIMB Research 2021-06-10: Increasing Residential Land Supply

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 - Increasing Residential Land Supply

  • New residential units from the Confirmed List in the government land sales (GLS) programme increased to 2,000 units for 2H21.
  • The increase in residential supply is likely to enable developers to replenish their land banks, while easing the momentum on price trajectory.
  • Reiterate sector Overweight on valuations. Preferred picks: UOL Group (SGX:U14), City Developments (SGX:C09), CapitaLand (SGX:C31).

2H21 GLS programme offers 13 confirmed and reserve sites

  • The government has released land sites for 6,860 residential units (2,000 confirmed, 4,860 reserve), 90k sq m GFA of commercial space, and 530 hotel rooms under its 2H2021 government land sale programme (GLS). Of the total 13 sites, five are new offerings, namely
    • Lentor Hills Road (Parcels A and B),
    • Bukit Batok West Avenue 8 (EC) and
    • Pine Grove (Parcels A & B).
  • The government also indicated acceptance of an application from a developer (who had committed to submit a bid at a minimum price of S$1.508bn) to put up the white site at Marina View for sale by public tender.

Boosting confirmed residential supply

  • Overall, on a h-o-h basis, although private residential supply in the Confirmed and Reserve List has remained relatively stable, private homes supply in the Confirmed List has been increased by 25% to 2,000 units, comparable to the level in 1H19 GLS. The increase in Confirmed List residential supply reflects the declining unsold inventory in the market, balanced out by the tight labour market condition and continued economic uncertainties due to the ongoing COVID-19 situation.
  • We see this bump-up in supply as a slight positive for the market as it would enable developers to partially replenish their dwindling launch pipeline and extend development income visibility, while easing momentum on price trajectory.

Reiterate forecast of 5% price growth for 2021F

  • Private home prices rose 3.3% in 1Q21, and we expect prices to continue trending up in 2Q21F, underpinned by robust demand. Meanwhile, year-to-date Apr 21, private new home sales totaled 4,836 units (+90% y-o-y).
  • We maintain our expectation for private home prices to rise by 5% in 2021F, on the back of continued buying interest and low interest rates.

Reiterate sector Overweight

  • Developers’ valuations still look inexpensive to us, trading at a 45% discount to RNAV, close to 1 standard deviation below long-term mean discount. We prefer developers with a high recurring cashflow base and strong balance sheets that would enable them to tap into any opportunities during this slower cycle.
  • Our preferred picks are UOL Group (SGX:U14), City Developments (SGX:C09), CapitaLand (SGX:C31).
  • See peer comparison table for SGX listed property developer peers including Frasers Property (SGX:TQ5), Wing Tai (SGX:W05), Hongkong Land (SGX:H78) in report attached below.
  • Sector re-rating catalysts: good sell-through rates for new launches.
  • Downside risks: faster-than-expected interest rate hikes, and weaker-than-expected macro outlook, which could dampen the demand for big-ticket items such as housing.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-06-10
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