Singapore Real Estate - RHB Invest 2022-09-12: Early Signs Of Price Resistance


Singapore Real Estate - Early Signs Of Price Resistance

  • Singapore residential prices rose 4.2% in 1H22, more than expected, and we forecast price growth to moderate to flattish levels in 2H22. Our show flat visits indicate demand for new launches remains strong backed by unique factors and lack of supply, yet we began to observe weakness in secondary markets due to a mismatch of pricing expectations.
  • Rising interest rates and economic slowdown are expected to further dampen sentiment with a likelihood of additional policy tweaks.

Strong new launch take-ups driven by unique factors…

  • We recently visited Lentor Modern show flat. Refer to the report attached below for the key takeaways from our visit.
  • We note that strong take-up and record pricing seen in new launches were driven by the following unique factors which do not exactly reflect the overall sentiment:
    1. Lack of new launches in the locality (AMO Residences, Sky Eden@Bedok) and proximity to MRT station and good schools;
    2. Developers targeting affordability by compressing unit sizes to keep most units’ overall quantum in the S$1.5-2.5m range;
    3. Low interest payments during the initial construction stages of project, making buyers less sensitive to sharp rising rates.

... but supply increases should ease pricing pressure by 4Q.

  • Another key reason driving strong sales in new launches has been the limited unsold private residential units in the market resulting in limited choices. However, this is changing as 2Q saw a slight build up in unsold inventory to 17,506 units, after declining for 11 consecutive quarters.
  • The confirmed list of residential supply (for 2H22) is also increased by 26% h-o-h to 3,505 units. In addition, nine projects, worth S$1.8bn have transacted via en-bloc transactions year-to-date which should add > 2,000 units to the pipeline in 2023.

Secondary market volume slowdown, a better reflection of price resistance.

  • Private resale volume fell 23% y-o-y in 1H22 as per data from the Urban Redevelopment Authority. Data from the Singapore Real Estate Exchange points to a further 31% y-o-y slowdown in July.
  • Based on our channel checks with agents there, it was a notable increase in sales completion period due to pricing mismatches with buyers turning more price sensitive due to rising interest rates. A similar trend is seen in the Housing Development Board resale market too where August and year-to-date volumes fell 7% and 16% y-o-y.

Further cooling measures cannot be ruled out.

  • In a less likely scenario of property prices rising another 5% in 2H22, we expect authorities to intervene with additional cooling measures. This could take the form of revising up medium term interest rate assumptions for calculating borrowers’ total debt servicing ratio to 4-4.5% instead of the current 3.5% and further lowering loan to value ratios.
  • The objective of such measures is to protect buyers from getting wrong footed in a rising interest rate environment and safeguard financial institutions.

We revise up our 2022 full year pricing forecast to 4-6%

  • We revise up our full year pricing forecast to 4-6% (from -2% to 2%) and revise lower for 2023 from -2% to +2% (from 1% to 3%). Our 2022 volume assumptions remain unchanged at 8,000-9000 units (30-40% y-o-y decline) for primary market and anticipate a 10-20% decline in the secondary market.
  • Stay NEUTRAL on Singapore developer stocks. City Developments (SGX:C09) remains our Top Pick on valuation grounds.

Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2022-09-12
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