Singapore property developers’ recovery looks on track

Rivercove Residences balloting day
Rivercove Residences balloting day

Daiwa released a research note backing Singapore property developers after strong November sales.

Key takeaways

  •  1,052 new homes sold this month as of 18 November 2018, backed by 7 new launches
  • We still see healthy sales rates for the new launches and ongoing launches, even after the cooling measures in July 2018
  • We reiterate our Positive rating on the sector, with Buy ratings for City Developments (our top pick) and CapitaLand

What’s new: Based on data from the Singapore Urban Redevelopment Authority’s REALIS database, there have been 1,052 new-unit sales so far this month (as of 18 November), boosted by 7 new launches. We believe November could end up as one of the strongest months in 2018.

What’s the impact: The trend of new-home sales since the implementation of the additional cooling measures on 6 July 2018 has been mixed (weak in August and October, but strong in September and November), but we believe the overall trend (of new-home transactions) is improving.

In other news

We believe take-up rates, aside from a few exceptions, have been respectable, for the new launches in November (20-54%) and for the ongoing launches (32-70%), implying that there is still a sizeable pool of home buyers in the market.

With these healthy take-up rates and steady unit sales each month, we see little risk of developers not being able to fully sell their projects before their 5-year development and sales deadlines.

We also note that, Whistler Grand, the new launch by City Developments (CIT SP, SGD8.55, Buy) has already sold 193 units (27% of total units).

This launch compares favourably with The Tre Ver, which has sold 234 units (32% of total) since its launch in August 2018.

We acknowledge that the 2 projects are targeted at different segments and price points, but interestingly, the average price per unit (for sales in November) is actually higher for Whistler Grand (SGD1.06m vs. SGD1.05m for The Tre Ver), which we believe is a testament to the project’s value-for-money proposition and the financial strength of its buyers.

What we recommend: We reiterate our Positive view on the sector as the sales data in November reinforce our view that the physical market has stabilised after the cooling measures, almost perfectly in line with the government’s intention, and is on track for a gradual recovery of 5-8% p.a. for 2018-20E.

With little evidence of tail risks (such as a downward spiral in prices or a freezing of the market) emerging, we believe property-developer stocks such as City Developments and CapitaLand (CAPL SP, SGD3.15, Buy) have been excessively oversold and that their discounts to NAVs (of 40-45%) will gradually narrow if the healthy new-home sales trend continues.

Downside risks include sharp declines in volumes or prices in the coming quarters and the persistence of near-record-high prices for development sites in public and private (including en-bloc) land tenders.

How we differ: Our preference for property developers over S-REITs is probably still non-consensus as we believe the risk-reward ratio of developer stocks are more attractive after their severe sell-off YTD.