Last Tuesday, the Singapore government announced the 2H14 Government Land Sales (GLS) Programme, which comprises 9 Confirmed List sites (6 residential + 2 residential & commercial + 1 commercial) and 14 Reserve List sites (12 residential + 1 commercial + 1 white). Macquarie Equities Research released a report on the same day, some excerpts are shown below.
 
Impact
Resi land quantum trimmed again. A potential 10,220 residential units could be released in 2H14, which represents a 12% HoH decrease and the second straight decline after 1H14’s -18%. Only 3,915 units (-15% HoH) are on the Confirmed List, of which 39% are Executive Condominiums. A majority of the sites are mass market (67% of total), followed by mid-end (18%) and high-end (15%). Based on MER’s detailed analysis, most sites on both the Confirmed List and Reserve List are well located, ie, near train stations. On a full-year basis, the number of Confirmed List units in 2014 was down 34% YoY to 8,545 units, a third consecutive year of decline.
 
Record completions a decisive factor. MER believes the government’s reduced land quantum reflects its concerns on the record completions over the next few years, which will see supply rise by a 3-yr compounded annual growth rate (CAGR) of 6.7% from 2013–16 after growing by 4% in 2013. While the vacancy rate was 6.6% in 1Q14, MER estimates it could potentially increase to 8–13% in 2014–16. Historically, property price declines have coincided with vacancies of >8%. In view of subdued primary demand, developers’ appetite for land has also waned.
 
1 commercial land parcel along Paya Lebar Road (GFA: 1.4m sqf), which comprises a commercial site on the 1H14 Reserve List and another plot immediately south of Paya Lebar East-West Line train station, has been added on the Confirmed List. The site will facilitate Paya Lebar Central’s development into a commercial node, in line with the government’s aim of decentralising employment centres. MER expects greater interest from landlords with nearby projects, namely UOL Group, as well as private developers such as Low Keng Huat, Guthrie and Sun Venture.
 
1 new commercial site along Beach Road (GFA: 1.0m sqf) has been added on the Reserve List, on top of an existing white site along Marina View (GFA: 1.1m sq). MER thinks both sites are unlikely to be triggered given the sizeable office completions in 2016/17 within the vicinity. There are no available hotel sites on both the Confirmed List and Reserve List.
 
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, ie. GLP and CAPL. SREITs have risen 7.5% YTD, with office the top performer at +12.5%. Hence, MER prefers industrial and retail SREITs. MER’s top picks are AREIT, MLT, CT and MCT.

Source: Macquarie Research - 18 Jun 2014