Although the risk of further government cooling measures could slow down the rate of acceleration in property prices, we expect property prices to maintain their uptrend. Recommend a near-term switch to CapitaLand. Prefer City Developments, Ho Bee, Wing Tai and Allgreen in the mid to long term.

Urban Redevelopment Authority's (URA) flash estimates indicate that private home prices increased 15.9% quarter-on-quarter (qoq) to 154.5 points in 3Q09 compared with a 4.7% qoq drop in 2Q09. Private home prices are now 17.4% below the 2Q96 peak levels. In a similar trend, Housing and Development Board's (HDB) flash estimates indicate that public housing prices advanced by another 3.2% qoq to 144.7 points in 3Q09, surpassing the all-time high of 140.2 points set in the previous quarter. To meet the increasing demand, HDB has raised the supply of Built-To-Order units (BTO) this year from 8,000 units to 9,000.

Steepest rise in nearly two decades
Private residential prices bounced back strongly across all segments in 3Q09 with the mid-tier segment proxy registering the maximum increase of 19.1% qoq, followed by a 16.2% increase in the high-end segment proxy and a 15.2% increase in the mass market segment proxy. The overall private home price increase of +15.9% qoq is the steepest climb in price index value since 1Q90.

We believe the recent government actions to ensure sustainability in the market come in the wake of this recent spurt in property prices. Our recent show flat visits indicate that the impact is minimal with a marginal slowdown of 10-15% in sales volumes while prices remain stable. Although we expect the rate of acceleration in property prices to slow down, property prices are likely to maintain their uptrend.

HDB increases public housing supply to cater to demand
HDB has increased the supply of BTO units from 8,000 units to 9,000 this year in a move to fulfill the increasing demand for public housing. In addition, HDB will also launch another 2,132 flats for sale under the Sale of Balance Flats (SBF) exercise that is generally undertaken when a sufficient number of flats has been accumulated in the scheme. HDB has launched 3,945 BTO flats year to date and will be releasing another 5,000 new flats in the next three months.

Despite the increase in the number of BTO units, supply remains tight with a mere supply of about 5,400 units per annum in the last five years compared with a 15 a-year long-term average of 19,000 units p.a. The current move is an indication of the healthy demand-supply situation in the property market.




Stock Recommendations
While the increase in public housing supply and risk of potential demand-side measures by the government will have a negative near-term impact, dampening the pace of recovery, we maintain our positive stance on the sector's mid- to long-term prospects. This is because the current recovery in the property market has been supported by strong underlying demand-supply dynamics, a low interest rate environment and high liquidity flows that are expected to remain favourable.

Near-term correction presents buying opportunities for property stocks and we recommend a near-term switch to CapitaLand while awaiting better reentry points for the other property stocks. City Developments, Wing Tai, Ho Bee and Allgreen are our preferred prices over the medium to long term.

Disclaimer
We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgment by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities.

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