• Risk-rewards balanced; Top Pick: City Developments. The local residential market is set to stay resilient in 2023 despite rising interest rate pressures, as low inventory and supply, relatively healthy household balance sheets, and rising rental yields limit the downsides. 2022 property prices came in ahead of our expectations at 8.4%. For 2023, we expect prices to slow down to the -2% and 2% range with volume seeing a slight moderation. Listed developers have priced in most of the downside risks and continue to trade at an attractive 50-60% discount to RNAV. NEUTRAL.

• Primary market prices to remain steady… Despite rising interest rates impacting buyers’ affordability, we expect new launch prices to remain on a slight uptrend based on three key factors: i) Rising land acquisition costs, ii) developers’ low inventory levels and higher cost pressures that limit room to cut prices, and iii) upgrader demand and higher rental yields supporting the market. The number of new 2023 launches are set to double that of 2021, at c.10,000 units, which should provide more buying choices and alleviate some of the price pressures seen last year. As a result, buyers are set to be more selective, with projects having the right amenities – eg near good schools and mass rapid transit (MRT) stations – seeing strong demand. We expect new launch prices in 2023 to be 0-3% higher vs 2022.

• …while resale prices could likely see slight moderation. On the other hand, resale prices are more susceptible to small price corrections from rising interest rates in our view. This is as rising interest rates, coupled with a weak economic outlook, greatly impact over-leveraged borrowers – they may now be more willing to lower their pricing expectations. Anecdotally, we see a notable increase in the turnaround time for the sale of resale units, which we attribute mainly to the growing pricing expectation mismatch. The downside though is supported by the relatively strong household balance sheets and Singapore’s rising status as a global financial hub. Similarly, we expect the Housing & Development Board’s (HDB) resale segment (especially larger units) will be impacted by the latest cooling measures. Overall, we expect resale prices to be in the -3% and +1% range.

• Resale volume to continue slowing down. 2022 new home sales (ex- executive condominiums or ECs) fell short of our expectations at 7,384units (-43% YoY) due to a dearth of new launches. We expect 2023 new sale volume to be slightly higher (8,000-9,000 range) mainly driven by significantly higher new launches. Resale volume though is expected to take a hit on pricing expectation mismatch and rising interest rates. We expect resale volume to be 5-20% YoY lower in 2023.

• Healthy presales and investment income support developers’ earnings. The strong residential pre-sales in 2021-2022 has resulted in healthy unbilled sales for developers – this will be progressively recognised in 2023-2024. Most developers also have a high proportion of recurring income stream (50-80%) from investment properties, which should remain stable. We do not expect any significant rise in cap rates for Singapore’s commercial and hospitality assets limiting write-downs or impairments.

Source: RHB Research - 18 Jan 2023