Singapore Property Sector - UOB Kay Hian 2022-09-19: Increased Residential Supply Likely To Hit The Market Soon

Singapore Property Sector - UOB Kay Hian Research | SGinvestors.io CAPITALAND INVESTMENT LIMITED (SGX:9CI) PROPNEX LIMITED (SGX:OYY)

Singapore Property Sector - Increased Residential Supply Likely To Hit The Market Soon

  • Public and private property prices remain strong in Singapore in 2022. However, we note that higher interest rates have resulted in a real estate downturn in other developed markets. Importantly, the Singapore government has doubled GLS in 2022 vs 2021, potentially injecting significant levels of supply in the near to medium term.
  • We prefer CapitaLand Investment (SGX:9CI) which does not have exposure to the Singapore residential market. Maintain OVERWEIGHT on the sector.

What's New

  • HDB prices remain firm, rising 0.4% m-o-m in Aug 22 (+0.7% m-o-m in Jul 22) which made this the 26th straight month of price increase. More importantly, HDB prices have risen 10.8% y-o-y due to the lengthy process of Build-to-Order (BTO) flats, rising private property prices and worries over further interest rate hikes. Headline-grabbing million-dollar HDB resale flats have been more prevalent: year-to-date, 240 of such units have transacted vs 2 in 2012.
  • Globally, property prices in developed markets have responded to higher interest rates – will Singapore follow suit? Since the onset of higher interest rates in early-2022, countries such as Australia, Canada and New Zealand and regions in Western Europe have seen signs of sharper cooling. Consumers with relatively new floating-rate loans at extremely low rates, or those with maturing fixed-rate loans, are especially vulnerable.
  • Material increase in GLS. Given the continued strength in Singapore property prices, it would appear that the government is trying to increase supply into the market as Government Land Sales (GLS) has more than doubled vs 2021 and has exceeded the strong land sale numbers seen in 2017 and 2018. Coupled with ex en bloc-related projects, it would appear that there is a substantial amount of supply that could enter the market in the near-to medium-term. In 2Q22, Singapore’s private property price index increased 3.5% q-o-q, the second-largest rise since 1Q18, and we question whether such increases can continue in the face of higher supply entering the market.
  • Planned private residential units slowly increasing. Since witnessing a COVID-19-related trough of around 10,400 in 3Q20, planned private residential and Executive Condominium units in the pipeline have increased by > 65%, albeit off a low base, to nearly 17,200 as at end-2Q22. While new launches for private residential units totalled about 7,200 in 2022, this is expected to materially increase to nearly 17,400 in 2023.
  • Recent transactions for private properties show that Singaporeans continue to favour property investments, especially new projects. Notable ones that have sold well during their respective launches include Amo Residences (by UOL Group (SGX:U14), Singapore Land (SGX:U06) and Kheng Leong) and Sky Eden (by Frasers Property (SGX:TQ5)) – all with 99-year leaseholds. GuocoLand (SGX:F17)’s Lentor Modern, an integrated mixed-use development, sold 84% of its units at launch on the 17/18 Sep 22 weekend at prices ranging from S$1,850 to 2,500psf. Such pricing for new launches have been impressive with pricing on a psf basis for these new apartments equaling or even exceeding that of luxury resale apartments in Sentosa.
  • Affordability a material concern for those trying to enter the private property market. With HDB prices on average requiring about 7.5 years of annual income, they remain affordable in our view. However, private property prices have risen materially in the past two years and thus have become less affordable for Singaporeans: currently, it requires nearly 24 years of annual income vs 21.5 years in 2020. For young families looking to upgrade from their HDB flats, this will present an ever higher obstacle in our view.
  • A back-end loaded year. It appears that 2022 will be a back-end loaded year for project launches with 50% of the launches taking place in 4Q22. Refer to the table that summarises property project in 2022 in the report attached below, we note that only five of the 30 new launches in 2022 are in the Core Central Region (CCR) with 10 in the Outside Central Region (OCR) and 15 in the Rest of Central Region (RCR). With the relatively fewer number of OCR projects, prices have been bid up with high levels of interest, thus translating into pricing strength for projects such as Amo Residences, Sky Eden and Lentor Modern.

Our preferred property developer stock remains CapitaLand Investment

  • Our preferred property developer stock remains CapitaLand Investment (SGX:9CI) which is not exposed to the Singapore residential segment. While its 1H22 results were slightly weaker than expected due to delays in its capital-recycling program in China, we expect a decent level of catch-up in 2H22 coupled with continued strong performance from its lodging segment.
  • PropNex (SGX:OYY) appears to be the best way to play the continued strong Singapore residential performance while City Developments (SGX:C09)'s sales performance at its Tengah Garden Walk EC will be closely watched.


  • Property prices could suffer if:
    1. the Singapore Government introduces cooling measures, although we note that the Singapore government has increased GLS in 2022 in response to property price increases, and
    2. higher interest rates result in lower demand for property as buyers cannot service their mortgages.
  • Property prices could see upside if:
    1. Singapore continues to be viewed as a safe haven and remains attractive to foreign investors despite the high level of property taxes, and
    2. inflation remains at high levels thus sustaining demand for property, which is often seen as a hedge against inflation.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-09-19
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