On Tuesday, Macquarie Equities Research (MER) issued a report analysing the Singapore property market after the Urban Redevelopment Authority (URA) and Housing Development Board (HDB) released first quarter 2014 (1Q14) flash estimates of price indices for both private and public residential properties. Read on for MER’s take on the figures:
 

Impact
Overall private residential prices fell 1.3% quarter-on-quarter (QoQ) in 1Q14, representing a steeper decline versus 4Q13’s -0.9% and also the second consecutive quarterly decline. Prices have fallen 2.2% since the peak in 3Q13. Landed property prices also fell 0.6% QoQ, the second straight quarterly decline after 4Q13’s - 1.0%. Landed prices have fallen 1.6% since peaking in 3Q13.
 
Price declines in all regions. Rest of Central Region (RCR) or mid-end fell the most by 2.8% QoQ, reversing 4Q13’s +0.4%. Outside Central Region (OCR) or mass market fell by a slower 0.3% QoQ vs. 4Q13’s -1.0%, representing the second straight quarterly decline. Core Central Region (CCR) or high-end fell 1.3% (vs. 4Q13’s -2.1%), a fourth consecutive decline.
 
HDB resale prices fell 1.5% QoQ in 1Q14, similar to 4Q13. This signified a third consecutive quarterly price decline since peaking in 2Q13.
 
MER is forecasting a 4% drop in overall private residential prices in 2014, underpinned by high-end (-5%), mid-end (-4%) and mass market (-3%). MER expects downside pressures to come from the primary market as more developers (particularly smaller firms and non-traditional players) could offer
discounts to capture sales in a slowing market. In the secondary market, record completions amid a challenging rental market could prompt more selling activity among investors, particularly those who purchased their properties in 2011 and require only a 4% profit to breakeven on the seller’s stamp duty. The effects of Total Debt Service Ratio (TDSR) and previous cooling measures will also continue to linger, though MER does not expect any relaxation of the cooling policies in the near-term.
 
 
MER’s 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. CapitaMallsAsia, GLP and CapitaLand. Singapore REITs trade at a yield spread of 3.9% and price to book (P/B) of 1.00x, versus 10-year mean of 3.4% and 1.12x.
 
Their current share prices suggest that the market is pricing in 10-year risk-free rate of 3.5% versus spot of 2.5%. MER continues to recommend buying into this weakness, especially large-cap names – Ascendas REIT, Suntec REIT, CapitaMall Trust, CapitaCommercial Trust and Mapletree Commercial Trust.

Source: Macquarie Research - 4 Apr 2014