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UOBKH: Property – Singapore (Overweight)

Posted on September 19, 2022September 19, 2022 By alanyeo No Comments on UOBKH: Property – Singapore (Overweight)
Developers: Increased Residential Supply Likely To Hit The Market Soon

Public and private property prices remain strong in Singapore in 2022. However, we note that higher interest rates have resulted in a real estate downturn in other developed markets. Importantly, the Singapore government has doubled GLS in 2022 vs 2021, potentially injecting significant levels of supply in the near to medium term. We prefer CLI which does not have exposure to the Singapore residential market. Maintain OVERWEIGHT on the sector.

WHAT’S NEW

• HDB prices remain firm, rising 0.4% mom in Aug 22 (+0.7% mom in Jul 22) which made this the 26th straight month of price increase. More importantly, HDB prices have risen 10.8% yoy due to the lengthy process of Build-to-Order (BTO) flats, rising private property prices and worries over further interest rate hikes. Headline-grabbing million-dollar HDB resale flats have been more prevalent: ytd, 240 of such units have transacted vs 2 in 2012.

• Globally, property prices in developed markets have responded to higher interest rates – will Singapore follow suit? Since the onset of higher interest rates in early-2022, countries such as Australia, Canada and New Zealand and regions in Western Europe (see chart overleaf) have seen signs of sharper cooling. Consumers with relatively new floating rate loans at extremely low rates, or those with maturing fixed-rate loans, are especially vulnerable.

• Material increase in GLS. Given the continued strength in Singapore property prices, it would appear that the government is trying to increase supply into the market as Government Land Sales (GLS) has more than doubled vs 2021 (see chart on RHS) and has exceeded the strong land sale numbers seen in 2017 and 2018. Coupled with ex en bloc-related projects, it would appear that there is a substantial amount of supply that could enter the market in the near- to medium-term. In 2Q22, Singapore’s private property price index increased 3.5% qoq, the second-largest rise since 1Q18, and we question whether such increases can continue in the face of higher supply entering the market.

• Planned private residential units slowly increasing. Since witnessing a COVID-19- related trough of around 10,400 in 3Q20, planned private residential and Executive Condominium units in the pipeline have increased by >65%, albeit off a low base, to nearly 17,200 as at end-2Q22. While new launches for private residential units totalled about 7,200 in 2022, this is expected to materially increase to nearly 17,400 in 2023.

STOCK IMPACT

• Our preferred stock remains CapitaLand Investment which is not exposed to the Singapore residential segment. While its 1H22 results were slightly weaker than expected due to delays in its capital-recycling program in China, we expect a decent level of catch-up in 2H22 coupled with continuted strong performance from its lodging segment. Propnex appears to be the best way to play the continued strong Singapore residential performance while CDL’s sales performance at its Tengah Garden Walk EC will be closely watched.

SGP-PropertyClick here to Download Full Report in PDF

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Research - Equities Tags:Capitaland Investment, Centurion Corporation, City Developments, Propnex, singapore property, UOL

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