Property Sector-080612-OIR

8/14/2019 Property Sector-080612-OIR

1/10

MITA No. 016/06/2008

Please refer to the important disclosures at the back of this document.

Property Sector

Where are we headed?

S I N G A P O R E Sector Update

Foo Sze Ming(65) 6531 9810e-mail: [email protected]

12 June 2008

Developers holding back launches since 3Q07. Developers have

remained cautious with new launches as evident in the sharp decline in

the quarterly new launches from the high of 4,362 units in 2Q07 to 1,343

units in 1Q08 and many are reportedly holding back their launches due to

the weak market sentiments. While bigger developers with strong balance

sheet have the capacity to hold back their launches, smaller developers

with high gearing may face pressure to launch their projects in a depressed

market as a result of their high borrowings. And with cost of debt rising due

to the credit crunch and inflation, these small developers may faceincreasing difficulties in securing credit lines. As such, we are cautious on

small developers that had acquired land banks at high prices in 2007 and

have yet to secure funding for their projects.

Take-up rate hits new low in 1Q08. While developers continue to cut

back on their launches in 1Q08, the lower number of units launched still

could not be absorbed by the market, as the take-up rate for new launches

has plunged sharply from 82.9% in 4Q07 to 54.4% in 1Q08, the lowest

since 2000. On a segmental basis, while take-up rates in the other two

regions had remained stable following sharp falls in the previous two

quarters, OCR saw the rate plunge from 91.8% in 4Q07 to 38.1% in 1Q08.

However, this may be due to the sharp 75.6% jump in new launches inOCR in the quarter.

Interest for mass market properties should come back. We believe

this abnormality could be due to concerns over the oversupply of mass

market properties as the take-up rate in OCR has been fairly resilient over

the past two quarters, And given that only five projects with total of 1,139

units are expected to be launched in OCR between 2Q08 and 3Q08, this

should ease concerns of oversupply and drive the take-up rate higher over

the next few quarters.

Neutral on the sector. We reiterate our NEUTRAL view on the Singapore

residential property sector as our expectation of price weakness in the

high end and price stability in the mid to mass market properties remain

unchanged. Thus, we remain cautious over developers that have large land

bank exposure in the high end market, like Capitaland and Keppel Land.

We are currently reviewing our calls on CapitaLand, City Developments,

Keppel Land and UOL Group due to a change in analyst coverage.

Neutral

Previous Previous Current

(S$m) Price Target Rating Rating

FY05 FY06 FY07 S$

City Developments 200.4 351.7 725.0 18.80 BUY Under Review

CapitaLand 750.5 1018.0 2759.3 6.94 HOLD Under Review

Keppel Land 155.7 200.3 779.7 7.90 HOLD Under Review

UOL Group 100.1 339.4 758.9 5.48 BUY Under Review

Net Profit


2/10

Page 2 12 June 2008

Sector Update

Chart 1: Price correction follows after volume decline

Source: URA

0

1000

2000

3000

4000

5000

6000

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20072008

Tra

nsaction

Volum

e

100.0

120.0

140.0

160.0

180.0

200.0

220.0

Pro

perty

PriceIndex

Transaction v ol Property Price Index

Developers holding back launches since 3Q07. Developers have

remained cautious with new launches as evident in the sharp decline in

the quarterly new launches from the high of 4,362 units in 2Q07 to 1,343

units in 1Q08 and many are reportedly holding back their launches due tothe weak market sentiments. While bigger developers with strong balance

sheet have the capacity to hold back their launches, smaller developers

with high gearing could face pressure to launch their projects in a depressed

market as a result of their high borrowings. And with cost of debt rising due

to the credit crunch and inflation, these small developers may face

increasing difficulties in securing credit lines. As such, we are cautious on

small developers that had acquired land banks at high prices in 2007 and

have yet to secure funding for their projects.

Past trends point towards another price correction. From Chart 1, we

observed that since 1995, there were three periods where the propertymarket experienced sharp declines in transaction volumes, prior to the

current period. It would be interesting to note that in two out of the three

periods during 1996 and 1999, property prices had experienced strong

run-ups and after the transaction volume has peaked, a price correction

would follow about one to five quarters later. The current situation in the

property market resembles that in 1996 and 1999 and if history were to

repeat itself, we could see property prices begin to correct over the next

few quarters.


3/10

Page 3 12 June 2008

Sector Update

Take-up rate hits new low since 2000. The take-up rate for new launches

plunged sharply from 82.9% in 4Q07 to 54.4% in 1Q08 (Chart 2), the lowest

since 2000. While developers continued to cut back on their launches in1Q08, the lower number of units launched still could not be absorbed by

the market. A further breakdown of the take-up rate according to different

regions showed that the weakness in 1Q08 was in the Outside Central

Region (OCR), while take-up rates in the other 2 regions had remained

stable following sharp declines in the previous few quarters. .

Chart 2: Take-up rate at new low since 2000

Source: URA, OIR estimates

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.05,000.0

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q

2000 2001 2002 2003 2004 2005 2006 20072008

Launches

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Take-up

r5ate

Launches Take-up rate


4/10

Page 4 12 June 2008

Sector Update

Source: URA, OIR estimates

Chart 3: Sharp decline in OCR take-up rate

0%

20%

40%

60%

80%

100%

120%

140%

160%

4Q 1Q 2Q 3Q 4Q 1Q

2007 2008

Take-up

rate

CCR RCR OCR

Interest for mass market properties should come back. One reason

for the plunge in OCR take-up rate from 91.8% in 4Q07 to 38.1% in 1Q08could be due to concerns of oversupply in the mass market properties

segment, brought on by the sharp 75.6% jump in new launches in this

segment in the quarter. Otherwise, we note that the take-up rate in OCR

has been fairly resilient over the past two quarters. And given that only five

projects with total of 1,139 units are expected to be launched in OCR

between 2Q08 and 3Q08, this should ease concerns of oversupply and

drive the take-up rate higher over the next few quarters.

Growth in rental rates could slow. The rental index has performed strongly

since the beginning of 2005, rising by 74.3% to date. This was on the backof a declining vacancy rate that fell from 8.8% to 6.3% over the same

period and the key contributing factor to this decline was the flurry of enbloc

sale tenders that reduced the amount of available properties in the market.

However, the cooling down of the enbloc fever will see fewer properties

being taken out of the market, which together with an impending supply of

an estimated 59,540 units to be completed between 2008 and 2011, we

could see vacancy rate increasing over the next few years. And this would

lead to a more muted outlook for rental rates amidst a more uncertain

economic outlook.


5/10

Page 5 12 June 2008

Sector Update

Chart 4: Strong rental index backed by declining vacancy rate

Source: URA

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1

Q

2

Q

3

Q

4

Q

1994199519961997199819992000200120022003200420052006

Vacancy

Rate

80

90

100

110

120

130

140

150

160

170

RentalIndex

Vacancy Rate Rental Index

Property prices could go down with rental rates. Historically, the rental

index and property price index have exhibited a strong correlation and the

recent strong performance of the Property Price Index (PPI) was well backed

by the run-up in the rental index Strong rental rates will attract more buyers

to invest in properties for the yield and thus driving property prices higher.

However, the more muted outlook for rental rates could be another catalyst

to dampen property prices going forward.


6/10

Page 6 12 June 2008

Sector Update

Chart 5: Strong correlation between property price and rental rate

Source: URA

80

100

120

140

160

180

200

1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q

1994 1995 19961997 1998 1999 2000 2001 20022003 2004 2005 2006 20072008

Property

price

index

Residential Property Index Rental Index

High-end property prices could fall further. High-end properties have

generally outperformed the rest of the market in 2007, where prices havesurged nearly 30.4% between 1Q07 and 1Q08. We attribute this strong

performance to strong foreign interests in Singapore properties, which saw

foreigners snatching up a record 2,262 units in 2007, and an increase in

speculative activities. However, anecdotal evidence suggests that interest

from foreign investors has started to wane in the wake of the global credit

crunch and speculative activities have also grounded to a halt with the

withdrawal of the Deferred Payment Scheme. We note that has been

reflected in the recent transactions of several up-market properties (refer to

Table 1). And to make matters worse, there is still a huge pipeline of projects

in CCR waiting to be launched this year and this could add another 2,617

units into the market, which is more than 10 times the number of unitslaunched in CCR in 1Q08. As such, we do not see any catalyst for near-

term price increase.


7/10

Page 7 12 June 2008

Sector Update

Chart 6: High-end market outperformed the rest

Source: URA

80

100

120

140

160

180

200

220

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

2004 2005 2006 2007 2008

Property

price

index

CCR RCR OCR

Footnote: CCR Core Central Region, RCR Rest of Central Region, OCR Outside Central Region

Table 1: Recent transacted prices sharply lower from peak prices

Source: URA

Project Highest Date Most recent Date Fall

name transacted price transacted price in price

(S$/psf) (S$/psf)

St Regis 4,653.00 May-07 2,900.00 Apr-08 -37.70%

Residences @ Evelyn 2,064.00 Apr-07 1,530.00 Apr-08 -25.90%

Icon 2,458.00 Nov-07 1,399.00 Mar-08 -43.10%

Ardmore II 3,598.00 Aug-07 2,499.00 Mar-08 -30.50%

The Sail @ Marina Bay 3,300.00 Oct-07 1,949.00 Mar-08 -40.90%

Cairnhill Crest 2,801.00 Jul-07 2,031.00 Apr-08 -27.50%

Marina Bay Residences 3,600.00 Jun-07 2,450.00 Dec-07 -31.90%


8/10

Page 8 12 June 2008

Sector Update

Neutral on the sector. We reiterate our Neutral view on the Singapore

residential property sector as our expectation of price weakness in the

high-end segment and price stability in the mid to mass market properties

remain unchanged. Thus, we remain cautious over developers that havelarge land bank exposure in the high end market, like Capitaland and Keppel

Land. We are currently reviewing our calls on CapitaLand, City

Developments, Keppel Land and UOL Group due to a change in analyst

coverage

Table 2: Future launches of developers

Location Units District

City Developments

The Quayside Isle Sentosa Cove 228 4

Shelford Suites Shelford Road 77 11

Thomson Road Jalan Datoh 336 12

Pasir Ris Parcel 1 Pasir Ris Drive 1 724 18

Balmoral Road Balmoral Road 85 10

Capitaland

Jalan Mutiara River Valley Road NA 10

Nassim Hill Tanglin Road NA 10

Tong Watt Road River Valley Road NA 9

Yio Chu Kang Road Yio Chu Kang Road NA 26

Cairnhill Road Orchard Road District NA 9

Keppel Land

The Tresor Duchess Road 62 10

Reflections at Keppel Bay Keppel Bay 1129 4

Crest @ Cairnhill Cairnhill Circle 15 9

Naga Court Bukit Timah Road 56 10

Marina Bay Suites Marina Bay 221 1

Keppel Bay Plot 3 Keppel Bay 307 4



UOL Group

Green Meadows Upper Thomson Road 400 20

Spottiswoode Park Spottiswoode Park Road 231 2

Simei St 4 Simei St 4 NA 18

Source: Company, OIR


9/10

Page 9 12 June 2008

Sector Update

For OCBC Investment Research Pte Ltd

Carmen LeeHead of ResearchPublished by OCBC Investment Research Pte Ltd

SHAREHOLDING DECLARATION:The analyst who wrote this report holds NIL shares in the above security.

RATINGS AND RECOMMENDATIONS:OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and tradingoriented. However, OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. OIRs Buy = More than 10% upside from the current price; Hold = Trade within +/-10% from the current price; Sell = More than 10% downside from the current price.

DISCLAIMER FOR RESEARCH REPORTThis report is solely for information and general circulation only and may not be published, circulated,reproduced or distributed in whole or in part to any other person without our written consent. This reportshould not be construed as an offer or solicitation for the subscription, purchase or sale of the securities

mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in thispublication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy orcompleteness, and you should not act on it without first independently verifying its contents. Any opinion orestimate contained in this report is subject to change without notice. We have not given any considerationto and we have not made any investigation of the investment objectives, financial situation or particularneeds of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and noliability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipientor any class of persons acting on such information or opinion or estimate. You may wish to seek advice froma financial adviser regarding the suitability of the securities mentioned herein, taking into consideration yourinvestment objectives, financial situation or particular needs, before making a commitment to invest in thesecurities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connectedand associated corporations together with their respective directors and officers may have or take positionsin the securities mentioned in this report and may also perform or seek to perform broking and otherinvestment or securities related services for the corporations whose securities are mentioned in this reportas well as other parties generally.

Privileged/Confidential information may be contained in this message. If you are not the addressee indicatedin this message (or responsible for delivery of this message to such person), you may not copy or deliverthis message to anyone. Opinions, conclusions and other information in this message that do not relate tothe official business of my company shall not be understood as neither given nor endorsed by it.

Co.Reg.no.: 198301152E


10/10

Property Sector-080612-OIR

Documents

Transcript of Property Sector-080612-OIR