• Aug sales down 57% MoM
• Limited developer launches
• Animal spirits from TDSR tweaks limited

Physical oversupply remains key headwind over 2016-17

After a strong July, where primary sales increased 150% MoM to 1,091 units (excluding ECs), August sales dipped to 473 units mostly due to the effect of the Lunar Seventh month. August 2016 primary sales were also 7.8% lower than the corresponding period last year as well.

This weak figure was mostly due to an absence of new launches by developers and we note that the resale market were in fact fairly vibrant over August with over 750 caveats lodged. The bestselling projects by developers were Lake Grande (35 units sold, S$1,317 psf), Trilinq (30 units, S$1,413 psf) and The Glades (22 units, S$1,415 psf).

Given that the market remains in a state of physical over-supply over 2016-17, we continue to forecast for private home prices to grind 5- 15% lower over this period and also expect pressures on rental rates to persist. Year to date, 5,239 private homes (excluding ECs) have been sold by developers, which is in line with our forecast for 6k-9k units sold in 2016.

Animal spirits from recent TSDR tweaks well managed

The authorities have been careful to clarify that the recent tweaks of refinancing rules under the Total Debt Servicing Ratio (TDSR) rules should not be construed as an easing of property curbs, and in fact have stated that they do not expect to ease anytime soon.

While buyer sentiments have been managed by the authorities’ clear messaging and any uplift in animal spirits has been limited so far, the recent TSDR tweaks give existing borrowers more flexibility in managing their debt obligations at lower rates and and would add a measure of stability in the balance sheets of existing borrowers – which is overall positive for the housing market and the banks’ balance sheets.

Maintain NEUTRAL on the property sector; we continue to prefer diversified blue chips with healthy balance sheets and strong business models. Our top picks are CapitaLand [BUY; S$3.68], City Dev [BUY; S$9.89] and GLP [BUY; S$2.37]

Source: OCBC Research - 20 Sept 2016