Singapore Property
By Brandon Lee, DMG & Partners
A staggering 1,323 private homes (+1125% month-on-month; 600% year-on-year) were snapped up in Feb 09, exceeding our forecast of 1,000 units. We estimate 90% of the sold units were below S$1,000 per sq ft (psf), with a bulk of them from mass-mid market projects such as Caspian, Alexis and The Quartz.
As per our predictions, prices in the mass and mid market remained flat at $700 and $800 psf respectively. While activity within the prime region was comparatively subdued, the 102 transacted units represented a notable month-on-month improvement (13 units in Jan 09),
mainly helped by old projects being re-launched at 10% to 25% price discounts, namely D'Chateau, RV Suites, Parc Sophia and Lucida. As such, average prices ended 11% month-on-month lower at S$1,400 psf. A total of 1,069 units were launched, with a healthy take-up of over 100%.
Absolute pricing the clincher
While it is true that mass market projects typically perform better during recessions, low absolute pricing is the present key sales driver, with buyers lured by low lump sums of $500,00 to $900,000. Interest Absorption Scheme's introduction also helped, as buyers were only required to fork out a reasonably affordable upfront payment and service the mortgages upon TOP. Other secondary drivers include convenience level, including accessibility to public transport (esp. MRT) and basic amenities, as well as pent-up demand from en-bloc sellers and HDB upgraders who were priced out during the previous property up cycle.
More launches – new and old
We expect additional mass market launches ahead as more developers take the cue from the success of Caspian's and Alexis's pricing strategies to move their inventories. Other incentives include starker price discounts, rental guarantees and free renovation packages.
Aside from new projects, we think there would be more re-launched (at deeper discounts) ones in order to generate cash flow, especially for smallish and niche developers. Looking forward, we reckon the 1,000 units per month quantum is not sustainable. Within the next 3 – 6 months, except for Double Bay Residences, Arte and Ascentia Sky, most new projects are small-midsized. As such, we predict 500 to 600 units per month for the next quarter.
Subsequently, it would revert back to a normalized 200 to 300 units per month as the economy worsens and the HDB resale market softens. Any upside surprises would come from more price cuts (to clear stock) from already-launched big projects, such as Livia, Clover by the Park, Waterfront Waves and Kovan Residences.
Selected prime regions normalising
While those from the mass market should dominate the upcoming launches, we think there could be a gradual increase in mid-prime market projects. More notably, prices in
selected prime locations appear to be nearing the levels last seen in previous crises and pre-2007 run-up.
Our conjectures stem from recent visits to showflats, specifically projects within the River Valley enclave – RV Suites and The Mercury. The former was re-launched at the $1,150 to $1,300 range while $950-S$1,100 was the asking range for the latter. Both quoted price ranges represent a far cry from the $1,600 to $2,800 range we witnessed during
2007 and first half of 2008 as well for selected projects. Other notable points include the
100% take-up for Kembangan Suites within a day, at average prices of $900 to $1,000 psf.
NEUTRAL rating for sector
While the swift 100% take-up of Alexis does signify a watershed change in preference towards smaller units, we believe the residential property market is still in the correction
process, especially for prime projects.
Buying sentiments here remain stifled, with specu-vestors yet to make any tangible entrance, as evidenced from the tepid volume within the subsales market (under 100 units in Feb 09 vs.
monthly average of ~ 400 units in 2H07).
Most of the current buyers are either Singaporeans or PRs purchasing for genuine owning-occupying purposes. Coupled with the continued weakening economic environment, we do not see any concrete reasons to upgrade our current NEUTRAL rating for the property
sector. CapitaLand (BUY TP: S$2.60) remains our sole BUY call among the three major developers under our coverage.
Disclaimer
This research is for general distribution. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed 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. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities, DMGAPS and its affiliates, their directors, connected person and employees may from time to time have interest and/or underwriting commitment in the securities mentioned in this report.
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