Macquarie Equities Research (MER) released a research report on 15 April, mentioning that Mar 2013 saw new home sales of 2,793 units, 4 times more than Feb 2013’s 712 units and a record high since Jun 2007 when the data was first compiled. Including Executive Condominiums, 3,072 units (+234% MoM) were sold.

Impact
Mass market accounted for 68% of total sales, as volumes in Outside Central Region (OCR) rose 280% MoM to 2,093 units. Rest of Central Region (RCR) saw a larger 384% increase to 822 units, making up 27% of sales. Core Central Region (CCR), where 157 units (-21%) were sold, contributed 5%. 38% of sales were transacted at below S$1,000 psf, with 38% (S$1,000-1,500 psf), 23% (S$1,500-2,500 psf) and 1% (S$2,500 psf and above).

Strong take-up reflects supply-led demand, as top sellers were all newly-launched projects in the month, including D’Nest (699 units at S$963 psf), Bartley Ridge (367 units at S$1,296 psf), Urban Vista (348 units at S$1,503 psf), Sennett Residence (238 units at S$1,474 psf) and Hillion Residences (191 units at S$1,340 psf). There were no new launches in Feb 2012, which coincided with the traditionally quiet Chinese New Year period. Further, these 5 projects were well-located at close proximity to train stations. Developers’ partial absorption of stamp duties also attracted more buyers.

Policy risks could rise, should demand remain at such levels over the next few months. While MER maintain its view that the Jan 2013 measures were the most drastic to date, MER believes it would take another 3-4 months to judge the full impact from the measures. Although headline prices have remained flat, MER estimates that net prices have softened by 3-5% factoring in developers’ stamp duty absorption, furniture vouchers and price discounts (3-7%). In the secondary market, asking prices have also come off by 5-10%.

Volumes to moderate in 2013. Despite QE3 keeping mortgage rates low, MER believes the measures in 2011-13 will result in potential buyers demanding some form of discount to transact in view of higher transaction costs, lower LTVs and increased mortgage repayments. Hence, MER estimates sales of 16,000 units in 2013 (-30% YoY), with prices down 3-5%. From 2014, prices could move in line with GDP growth rates, circa 2-3%. 1Q13 new home sales reached 5,533 units. The risk to this estimate is the record number of units completing in 2014-15. As most of these units are from buyers seeking tenants, there will be pressures on rental yields. If this happens, the yield spread will be narrowed and weaker holders might be tempted to sell, to lock in gains as average prices remain 4-7% higher compared to three years ago when they were purchased.

Outlook
Amidst the rising competition for land, there is also increased possibility of overpaying for land, which results in lower pre-tax margins. MER prefers developers with less Singapore residential exposure. CapitaMalls Asia is MER’s top property developer pick whilst City Developments remains an Underperform.

Source: Macquarie Research - 17 Apr 2013