• Buyers to stay cautious ahead
• Forecast home prices to fall 10%-15% in FY15-16
• Prefer large diversified developers

Demand likely to stay muted in 2015

We forecast residential home prices to dip 10%-15% over 2015 - 2016 and expect primary residential sales in 2015 to stay muted at between eight and ten thousand units sold. A heavy physical over-supply situation ahead, coupled with anticipated interest rate hikes from the Fed in 2H15, will likely keep buyers on the back foot going forward. That said, a price crash in excess of 20% is improbable, in our view, given the high price elasticity of demand in the housing market; that is, we will likely see significant buyer demand coming into the market at lower price points.

Review of measures possible after meaningful price declines

While we believe that the TDSR framework, introduced in Jun 2013, is here to stay, other measures such as the sellers’ stamp duties and additional buyers’ stamp duties appear to be possible candidates for review if the authorities potentially look to reverse curbs ahead. However, this scenario comes into play only when residential price declines approach a meaningful threshold of ~10%, which could happen by 2H15 or after. As indicated by Deputy Prime Minister and Finance Minister Tharman in late Oct 2014, the authorities see “some distance to go in achieving a meaningful correction.”

Prefer large diversified developers with strong balance sheets

Looking ahead, we see prices in the massmarket segment to be more at risk versus the mid-tier and high end, and shoebox units (<50 sqm) to be more at risk versus larger format units. We prefer large developers with strong balance sheets, diversified regional presence and portfolios with significant investment asset exposures. Our top picks in the space are Keppel Land [BUY, S$4.09], CapitaLand [BUY, S$3.79], Wheelock Properties (S) Ltd [BUY, S$2.38], and Hotel Properties Ltd [BUY, S$5.32]

Source: OCBC Research - 4 Dec 2014