The following are excerpts from Macquarie Equities Research (MER)’s report dated 15 August 2013.
 
July’s new home sales declined 73% mom (-75% yoy) to 481 units, in contrast to the rise of 24% in June. Including executive condominiums (ECs), 593 units (-72% mom, -71% yoy) were sold. The volumes in the first seven months of 2013 came to 10,431 units (-25% yoy). Developers launched 557 units, down 77% mom.
 
Impact
Mass market was the most affected,as sales in Outside Central Region (OCR) fell 76% to 408 units but still accounted for 69% of total volumes. Rest of Central Region (RCR) and Core Central Region (CCR) dipped by a respective 57% and to 62% to 140 units and 45 units, representing 24% and 8% of total volumes. 29% of homes were transacted below S$1,000 psf, with 49% (S$1,000-1,500 psf), 19% (S$1,500-2,500 psf) and 3% (>S$2,500 psf).
 
Demand was subdued for all newly-launched projects, evidenced by take-up rate of 14% and 6% for 463-unit Vue 8 Residence and 139-unit The Quinn, respectively. Other three smaller projects achieved below 10%. Top sellers were Forestville (78 units at S$734 psf), Vue 8 Residence (63 units at S$1,004 psf) and Bartley Ridge (25 units at S$1,216 psf). The most expensive project was TwentyOne Angullia Park, where 1 unit was sold for S$4,704 psf.
 
Secondary market remained tepid, as only 523 resale units (-20% MoM, -57% YoY) were transacted in July, continuing the trend in 1H13 (-34% YoY). This suggests more people are buying property for potential capital value upside, rather than for immediate occupation or rental purposes.
 
Volumes to slow. Post the recently-announced Total Debt Servicing Ratio (TDSR) and Aug-Sep 13 Hungry Ghost Festival, MER believes new home sales will be reasonably lower in 2H13, at around 1,000 units/month. This equates to 2013 volume of 16,000 units (-30% YoY). While the negative real interest rate and positive carry will continue to draw potential buyers, the 2011-13 cooling measures require some form of discount to transact in view of higher transaction costs, lower LTVs and increased mortgage repayments.
 
Prices to fall 3-5% in 2013. From 2014, prices could move in line with the GDP growth rate of 2-3%. The risk to this estimate is the record number of completions in 2013-15. As most of these will be owned by buyers seeking tenants, there will be pressures on rental yields. If this happens, yield spreads will narrow and weaker holders might be tempted to sell, in order to lock in gains as prices remain 4-7% higher vs. 3 years ago when they bought.
 
Outlook
Listed developers under MER’s coverage continue to lose market share, from 26% in 2009-12 to 15% currently. Amid rising competition for land, there is also increased possibility of overpaying for land, which would result in lower pre-tax margins. Among developers, MER likes names with less Singapore residential exposure ie. CapitaLand. CapitaMallsAsia and HongKong Land Holdings. However, MER’s preference for SREITs over developers remains unchanged. MER’s large-cap picks are CapitaMall Trust, Ascendas REIT, CapitaCommercial Trust, Suntec REIT and Mapletree Commercial Trust, while AIMS AMP Capital Industrial REIT and Cache Logistic Trust are preferred small-caps.

Source: Macquarie Research - 23 Aug 2013