According to Bloomberg, property counters represent approximately 14% of the STI’s constituent stocks. Share prices of most property developers have declined in 2014 on the back of slowing sales due to multiple rounds of property cooling measures.
 
Macquarie Equities Research (MER) issued a report on the Singapore property market on 17 March. Here are some excerpts from the report.
 
Event
Feb 14’s new home sales rose 28% MoM (+2% YoY) to 724 units, a slower increase vs. Jan 14’s +118%. Including executive condominiums (ECs), 769 units (+26% MoM, -17% YoY) were sold. 2M14 new home sales of 1,289 units represent a YoY decline of 53%.
 
Impact
Only 2 new projects were launched, namely 495-unit Rivertrees Residences (218 units at S$1,111 psf; 44% take-up) and 555-unit Riverbank@Fernvale (211 units at S$1,033 psf; 38% take-up) in Sengkang, which accounted for 56% of sales.
 
Mass market dominated, as sales in Outside Central Region (OCR) tripled MoM to 633 units due to the 2 new projects. Core Central Region (CCR) rose 23% to 49 units but Rest of Central Region (RCR) fell 76% to 87 units. OCR, RCR and CCR accounted for a respective 82%, 11% and 7% of total sales. 8% of units were transacted below S$1,000 psf, with 83% (S$1,000-1,500 psf), 9% (S$1,500-2,500 psf) and 0% (>S$2,500 psf).
 
Secondary transactions fell 33% MoM to 228 units, representing the fourth consecutive month of decline. Resale and sub-sale transactions were down by a respective 31% and 48% MoM to 207 units and 21 units.
 
Listed developers under MER’s coverage gained market share, accounting for 39% of total sales vs. Jan 14’s 13% and 6-yr mean of 25%.
 
MER is forecasting new home sales of 14,000 units (-6% YoY) in 2014, with a 4% drop in overall private residential prices underpinned by high-end (-5%), mid-end (-4%) and mass market (-3%). The key attractions of buying properties, which are negative real interest rate and positive carry, will diminish in  2014 due to lower inflation and heightened difficulty in securing tenants amid rising vacancies and tighter foreigner inflow. Further, the effects of TDSR and previous cooling measures will continue to linger, though MER does not expect any relaxation of the cooling policies in the near-term.
 
Outlook
In view of declining landbanks, narrowing pre-tax margins and price declines in 2014, MER prefers players with less Singapore residential exposure, i.e. CMA, GLP and CAPL. SREITs trade at a yield spread of 400bps and P/B of 0.99x, vs. 10-yr mean of 340bps and 1.12x. Their current share prices suggest that the market is pricing in 10-yr risk-free rate of 3.5% vs. spot of 2.4%. MER continues to recommend buying into this weakness, especially large-cap names – AREIT, SUN, CT, CCT and MCT.

Source: Macquarie Research - 25 Mar 2014