Reporter
28-08-09, 10:46
Buying Frenzy to Continue But Priced-In
Citi® Asia Pacific Real Estate: Singapore Property
Wendy M Koh (CFA) and ChunKeong Tan
Wednesday, 27 August 2009
© Residential price rise accelerated in 3Q09 - Six months into the pickup in demand, the property buying frenzy continues in Singapore. New sales in July were up 52% from June. Based on the caveats lodged, the price rise accelerated in 3Q09, with rises of 7-16% across the board. Luxury and mid segments are 15-30% above their lows in 1Q09 while the mass market is some 10% higher.
© Rental continues to fall - Based on 2Q09 rental transactions, rental rates fell by an average of 6%qoq in 2Q09 while prices were up by an average of 7%. As a result, rental yields fell 0.5-0.8% points to 2.9% for high-end, 4.2% for mid-end and 4.5% for mass market. We believe the already low rental yields and impending new supply will put a lid on the upside for the high-end segment.
©Higher HDB resale price and lower mortgage rates fuel further buying - HDB prices are about 11% higher while interest rates are more than 100bp lower than in 1Q08; this has enhanced affordability of the HDB upgraders despite mass market prices now being close to their 1Q08 peak. Coupled with the tight HDB supply, this leads us to believe the buying frenzy in the mass market could continue and prices could surpass their last peak in the short term. The relatively high rental yield base for the mass market also provides a buffer for continued divergence in prices and rental in the short term.
©Sustainability remains in question - While we think low interest rates will continue to fuel buying in the mass market segment in the short term, sharp price hikes without real wage growth, in our view, will prove to be unsustainable when the interest rate trend reverses.
© Expect large caps to continue to underperform - Most large cap property stocks have already factored in our best-case scenario, which reflects a 20% rise and office capital values bottoming at S$1500psf. Property stocks have underperformed the broader market in the past 2-3 months, and we believe the stocks will continue to underperform. Sell CapitaLand, CityDev and Keppel Land. Following strong performance of Wing Tai and relatively dismal performance of Allgreen, we have downgraded Wing Tai to Sell and upgraded Allgreen to Buy.
Citi® Asia Pacific Real Estate: Singapore Property
Wendy M Koh (CFA) and ChunKeong Tan
Wednesday, 27 August 2009
© Residential price rise accelerated in 3Q09 - Six months into the pickup in demand, the property buying frenzy continues in Singapore. New sales in July were up 52% from June. Based on the caveats lodged, the price rise accelerated in 3Q09, with rises of 7-16% across the board. Luxury and mid segments are 15-30% above their lows in 1Q09 while the mass market is some 10% higher.
© Rental continues to fall - Based on 2Q09 rental transactions, rental rates fell by an average of 6%qoq in 2Q09 while prices were up by an average of 7%. As a result, rental yields fell 0.5-0.8% points to 2.9% for high-end, 4.2% for mid-end and 4.5% for mass market. We believe the already low rental yields and impending new supply will put a lid on the upside for the high-end segment.
©Higher HDB resale price and lower mortgage rates fuel further buying - HDB prices are about 11% higher while interest rates are more than 100bp lower than in 1Q08; this has enhanced affordability of the HDB upgraders despite mass market prices now being close to their 1Q08 peak. Coupled with the tight HDB supply, this leads us to believe the buying frenzy in the mass market could continue and prices could surpass their last peak in the short term. The relatively high rental yield base for the mass market also provides a buffer for continued divergence in prices and rental in the short term.
©Sustainability remains in question - While we think low interest rates will continue to fuel buying in the mass market segment in the short term, sharp price hikes without real wage growth, in our view, will prove to be unsustainable when the interest rate trend reverses.
© Expect large caps to continue to underperform - Most large cap property stocks have already factored in our best-case scenario, which reflects a 20% rise and office capital values bottoming at S$1500psf. Property stocks have underperformed the broader market in the past 2-3 months, and we believe the stocks will continue to underperform. Sell CapitaLand, CityDev and Keppel Land. Following strong performance of Wing Tai and relatively dismal performance of Allgreen, we have downgraded Wing Tai to Sell and upgraded Allgreen to Buy.