- Aug private home sales showed selective buying post cooling measures, in our view.
- We think that fast asset turn and good sell-through rates are key to margin preservation.
- Stay sector Neutral. Our sector top picks are City Dev, UOL and HoBee Land.
Selective buying post measures
Aug monthly private home sales came in at 639 units (616 units excluding executive condominiums), down 60% yoy and 64% mom, reflecting a much quieter residential market post cooling measures.
New launches such as The Tre Ver garnered 22% sales (out of a total of 729 units) within the first month of launch at an average of S$1,551 psf, in line with the company’s expectations.
Meanwhile, selected ongoing projects saw an additional 4-10% changing hands such as Stirling Residences (32% sold), Affinity at Serangoon (16% sold), Riverfront Residences (47% sold) and Park Colonial (57% sold).
Slower pace of take up
In 8M18, non-executive condominium private home sales totalled 6,476 units, which is 27% lower than 8M17 and make up 65% of our full year expectation of 10,000 for 2018.
While replacement demand from displaced enbloc sellers could provide some support for transaction volumes, overall, we expect the cooling measures to have a dampening effect on buying sentiment and pricing expectations.
With the rise in land prices recently, resulting in high landbank cost, any significant price retracement or prolonged land holding period could impact development margins. Good sell-through rates and faster asset turn are key to preserving development margins.
Maintain sector Neutral
Property stocks are currently trading at a steep 47% discount to RNAV, dragged in part by macro events.
As property stocks’ outperformance has historically shown the highest correlation to take-up rates, the anticipated slower sell-through rate, due to more launch units, would continue to dampen stock price performance.
As such, we believe property stocks would continue to remain range-bound in the near term.
In terms of stock picks, we continue to prefer diversified developers with a high proportion of recurring income such as City Dev, UOL and HoBee Land.
Upside risks include higher-than-expected volume transactions while downside risks include faster-than-expected hikes in mortgage rates which would erode affordability.
Source: CIMB Research