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23-12-15, 15:56
http://www.businesstimes.com.sg/companies-markets/private-home-prices-to-drop-5-15-over-2016-2017-ocbc
Private home prices to drop 5-15% over 2016-2017: OCBC
By Lynette Khoo
[email protected]
@LynetteKhooBT
Dec 19, 2015
OCBC Investment Research said it expects private home prices to slip 5 to 15 per cent over 2016-2017 and 2016 primary residential sales to remain muted at between 6,000 and 9,000 units.
Residential rents could also drop 8-15 per cent over two years, analyst Eli Lee said in his report on Friday.
But a price crash in excess of 20 per cent is "improbable" given the high price elasticity of demand in the housing market - that is, there will be significant demand from buyers entering the market at lower price points, he added.
Citing high-end and diversified blue-chip developers among top picks, Mr Lee pointed out to three key drivers of domestic residential prices over the next two years.
"First, a significant physical oversupply situation is likely to persist, which will impact rental levels and vacancy rates. Second, floating mortgage rates (typically pegged to short-end Sibor or SOR) will rise alongside higher interest rates in the US, and this will add pressure on rental carry and housing affordability.
"Finally, on the flip side, we see potential curbs reversals after price declines reach double-digits in H2 2016 and after."
In the first 11 months of this year, 7,380 private homes (excluding executive condominiums) were sold, according to data from the Urban Redevelopment Authority. For the whole of 2015, most property consultants are expecting sales volume to hover around 7,500 units, similar to the 7,557 units sold in 2014.
Estimates by various property consultancies for developers' sales of private homes for 2016 have come within a broad range of 6,000-9,000 units. Their projections for private non-landed residential price movement also range widely from flat to a negative 15 per cent.
OCBC's Mr Lee said he favours high-end developers that are trading at attractive discounts to their fundamental valuations, namely Wing Tai and Wheelock Properties that are trading at an average discount of 56 per cent and 52 per cent of their revalued net asset values (RNAV) and book values respectively.
"We see relative value in the high-end segment, and highlight that the premium of high-end median per square foot (psf) prices over mass-market is currently at 59 per cent (near a 10-year low and more than one standard deviation below the 10-year average of 90 per cent)," Mr Lee said.
The seller's stamp duty (SSD) and additional buyer's stamp duty (ABSD) imposed since 2010 and 2011 respectively likely have had a heavier impact on the high-end segment, he added. With the ABSD being "a prime candidate for adjustment" if and when the authorities decide to support prices, a policy adjustment will benefit the high-end segment significantly.
OCBC Research also favours CapitaLand and UOL Group for their diversified business model and asset porfolios, healthy balance sheet and attractive valuations.
On Friday, shares in CapitaLand was down 0.31 per cent at S$3.25, UOL was down 0.16 per cent at S$6.08, Wing Tai was up 1.17 per cent at S$1.73 and Wheelock up 1.77 per cent at S$1.435.
RHB Research, which also has "buy" calls on CapitaLand and Wing Tai, noted that tepid residential sales performance by developers is "more than reflected in stock prices which are trading at 50-60 per cent discounts to RNAV".
"We like Wing Tai, which is leveraged to a recovery in the high-end residential market and has a robust balance sheet, and Ho Bee Land, which has a solid stream of recurring income from its investment properties," RHB said in a note earlier this month.
Private home prices to drop 5-15% over 2016-2017: OCBC
By Lynette Khoo
[email protected]
@LynetteKhooBT
Dec 19, 2015
OCBC Investment Research said it expects private home prices to slip 5 to 15 per cent over 2016-2017 and 2016 primary residential sales to remain muted at between 6,000 and 9,000 units.
Residential rents could also drop 8-15 per cent over two years, analyst Eli Lee said in his report on Friday.
But a price crash in excess of 20 per cent is "improbable" given the high price elasticity of demand in the housing market - that is, there will be significant demand from buyers entering the market at lower price points, he added.
Citing high-end and diversified blue-chip developers among top picks, Mr Lee pointed out to three key drivers of domestic residential prices over the next two years.
"First, a significant physical oversupply situation is likely to persist, which will impact rental levels and vacancy rates. Second, floating mortgage rates (typically pegged to short-end Sibor or SOR) will rise alongside higher interest rates in the US, and this will add pressure on rental carry and housing affordability.
"Finally, on the flip side, we see potential curbs reversals after price declines reach double-digits in H2 2016 and after."
In the first 11 months of this year, 7,380 private homes (excluding executive condominiums) were sold, according to data from the Urban Redevelopment Authority. For the whole of 2015, most property consultants are expecting sales volume to hover around 7,500 units, similar to the 7,557 units sold in 2014.
Estimates by various property consultancies for developers' sales of private homes for 2016 have come within a broad range of 6,000-9,000 units. Their projections for private non-landed residential price movement also range widely from flat to a negative 15 per cent.
OCBC's Mr Lee said he favours high-end developers that are trading at attractive discounts to their fundamental valuations, namely Wing Tai and Wheelock Properties that are trading at an average discount of 56 per cent and 52 per cent of their revalued net asset values (RNAV) and book values respectively.
"We see relative value in the high-end segment, and highlight that the premium of high-end median per square foot (psf) prices over mass-market is currently at 59 per cent (near a 10-year low and more than one standard deviation below the 10-year average of 90 per cent)," Mr Lee said.
The seller's stamp duty (SSD) and additional buyer's stamp duty (ABSD) imposed since 2010 and 2011 respectively likely have had a heavier impact on the high-end segment, he added. With the ABSD being "a prime candidate for adjustment" if and when the authorities decide to support prices, a policy adjustment will benefit the high-end segment significantly.
OCBC Research also favours CapitaLand and UOL Group for their diversified business model and asset porfolios, healthy balance sheet and attractive valuations.
On Friday, shares in CapitaLand was down 0.31 per cent at S$3.25, UOL was down 0.16 per cent at S$6.08, Wing Tai was up 1.17 per cent at S$1.73 and Wheelock up 1.77 per cent at S$1.435.
RHB Research, which also has "buy" calls on CapitaLand and Wing Tai, noted that tepid residential sales performance by developers is "more than reflected in stock prices which are trading at 50-60 per cent discounts to RNAV".
"We like Wing Tai, which is leveraged to a recovery in the high-end residential market and has a robust balance sheet, and Ho Bee Land, which has a solid stream of recurring income from its investment properties," RHB said in a note earlier this month.