Singapore Property
Overview
URA's flash estimates revealed that private home prices slid 5.7% QoQ in 4Q08. The 8.1% price downswing in 2H08 is in line with our estimates of 8.0%. While buyer sentiments and downside pressures to home prices were initially dogged by the US housing debacle and ensuing global financial crisis, we believe the main concern at hand now is centered on the wider economic slowdown and accompanying issues over the labour market (e.g. rising job insecurity brought about by the possibility of more layoffs, wage cuts and decreased employer CPF contributions).
While prices within the secondary market have tumbled by 10 – 30%, we believe this only applies to selected projects and not reflective of a broad-based or market-wide decline. Although we think developers would try their best to avoid trimming prices to the extent that it leads to considerable negative equity values to existing home owners (especially for projects sold at the peak of the property market), we also believe that they would budge if sentiments and take-up fail to improve. This can be partially justified through our recent show-flat visits and talks with property agents, which revealed that developers are now more realistic and inclined to lower their asking prices (either in absolute terms, cash rebates or waiver of part of the transaction fees). Further, property agents themselves have also put forward to developers their own set of price benchmarks which they think are practical in the current environment. While these are welcome, we reckon that the tipping point to uplift the property market is not solely up to the discretion of sell-side market participants, but more of an improved set of market dynamics from the external environment.
While softening interest rates are positive for the sector, we surmise that the increased stringency of banks' willingness to extend credit pertaining to big ticket purchases (especially auto vehicles and properties) are further dampening the interests of prospective buyers. From our view, the price decline has only just begun with the financial crisis' impact flowing through to the wider economy and various sectors such as manufacturing, retail and other non-financial services. We are sticking to our forecasts of overall price declines of 21% in 2009, and 4% in 1H10, before recovering in 2H10, In light of the above, we are thus maintaining our NEUTRAL rating for the property sector, with a higher preference for REITs.
Dip Deepens
Private home prices continue to dip. URA's flash estimates revealed that private home prices slid 5.7% QoQ in 4Q08, extending the 2.4% dip last quarter. On a YoY basis, overall prices have now fallen by 4.3%, overriding the gains in 1H08, as well as representing the first annual price dip since 2003 – year of the last major crisis of SARS. Prices are now 9.9% off the peak witnessed in 2Q96. As the flash estimates were tabulated based on the first ten weeks of 4Q08, it could stray from the actual price changes. That said, we note that the gap has historically stayed within -0.6 to +0.5%.
Figure 1: Private Property Price Index of Private Residential Properties vs. % Change
Figure 2: Actual Property Price Index of Private Residential Properties vs. Flash Estimates
In line with estimates and GDP trend. The 8.1% price downswing in 2H08 is in line with our estimates of 8.0%. While buyer sentiments and downside pressures to home prices were initially dogged by the US housing debacle and ensuing global financial crisis, we believe the main concern at hand now is centred on the wider economic slowdown and accompanying issues over the labour market (e.g. rising job insecurity brought about by the possibility of more layoffs, wage cuts and decreased employer CPF contributions). As such, overall prices have declined further on the back of a lower quantum of transactions and the need for projects to be priced relatively lower to attract buyers, as well as a handful of fire-sales in selected projects. Incidentally, we note that the slide in prices moved hand in hand with the contraction in GDP, underscoring the integral relationship between the economy's condition and property market's well-being.
Figure 3: YoY Change in Quarterly GDP vs. QoQ Change in Private Property Price Index
Central Region absorbs the most heat. Prices within the prime Core Central Region (CCR) registered the steepest decline amongst all regions, heading down 6.3% in 4Q08. Given CCR's position as a core gauge of ongoing sentiments and its speculation-driven transactions, we are not surprised at the degree of price downtrend. We also note that this downswing is against the backdrop of a tepid amount of activity within the subsales market. We estimate that within CCR, average median prices of units transacted in the primary market have slipped 35.6% YTD to S$1,486 psf in Nov 08. As for Rest of Central Region (RCR), prices here have decreased by a slightly better 5.5%.
Figure 4: Property Price Index in CCR, RCR and OCR
Figure 5: Change in Property Price Index of CCR, RCR and OCR
Mass market condos head south, but public housing continues northward. Mass market condominiums were not immune from the weakening sentiments, as prices within the Outside Central Region (OCR) further fell by 4.7% QoQ, after edging down 1.5% the previous quarter. In addition to the spillover effect from price declines within the Central Region, we believe another reason for the decline stems from private developers' increased willingness to trim their prices in order to narrow the gap between their mass market products and HDB flats. The objective is to tap onto the still-buoyant demand for public housing, as witnessed by the 1.5% rise in the HDB Resale Index and increased applications for resale flats, on the back of the tight supply of HDB flats amidst increased public housing applications from first-time owners, permanent residents and enbloc sellers who continue to be priced out of the mid-high end segment. However, as the economy is set to worsen going into 2009, we believe the demand is not sustainable as the buyers here are typically more price-sensitive and should place new purchases as the last item on their shopping lists.
Figure 6: HDB Resale Price Index vs. % Change
Maintain NEUTRAL rating on property sector, OVERWEIGHT on REITs. While prices within the secondary market have tumbled by 10 – 30%, we believe this only applies to selected projects and not reflective of a broad-based or market-wide decline. Although we think developers would try their best to avoid trimming prices to the extent that it leads to considerable negative equity values to existing home owners (especially for projects sold at the peak of the property market), we also believe that they would budge if sentiments and take-up fail to improve. This can be partially justified through our recent show-flat visits and talks with property agents, which revealed that developers are now more realistic and inclined to lower their asking prices (either in absolute terms, cash rebates or waiver of part of the transaction fees). Further, property agents themselves have also put forward to developers their own set of price benchmarks which they think are practical in the current environment. While these are welcome, we reckon that the tipping point to uplift the property market is not solely up to the discretion of sell-side market participants, but more of an improved set of market dynamics from the external environment. While softening interest rates are positive for the sector, we surmise that the increased stringency of banks’ willingness to extend credit pertaining to big ticket purchases (especially auto vehicles and properties) are further dampening the interests of prospective buyers. Buyers which still have the ability to buy are now also waiting on the sidelines for further price declines before loosening their purse strings. From our view, the price decline has only just begun, with the financial crisis' impact flowing through to the wider economy and various sectors such as manufacturing, retail and other non-financial services. We are sticking to our forecasts of overall price declines of 21% in 2009, and 4% in 1H10, before recovering in 2H10, In light of the above, we are thus maintaining our NEUTRAL rating for the property sector, with a higher preference for REITs.
Disclaimer
DMG & Partners Securities Pte Ltd may from time to time provide investment and financial related information and reports, including but not limited to research reports and market or securities specific analysis. Please note that all such material is provided by way of information only. All of the information, reports and analysis were and should be taken as having been prepared for the purpose of general circulation only and that none were made with regard to any specific investment objective, financial situation or the needs or any particular person who may receive the information, report or analysis. Any recommendation or advice that may be expressed in or inferred from such information, reports or analysis therefore does not take into account and may not be suitable for your investment objectives, financial situation and particular needs.
|
