• Major proxy to housing recovery
• Expect broad-based upturn to continue
• FV estimate increased to S$15.30

URA Price Index Continues to Rise in 4Q17

According to flash estimates, URA’s overall private residential price index increased 0.7% QoQ with prices rising across all three subsegments. In the high-end (Core Central Region or CCR) sub-segment, prices increased 1.6% versus a 0.1% increase in the previous quarter. Prices in the mid-tier (Rest of Central Region or RCR) and mass-market (Outside Central Region or OCR) segments also rose 0.6% and 0.8%, respectively, versus 0.5% and 0.8% in the previous quarter.

Cumulatively, over 2017, overall prices have increased 1.0% versus a 3.1% decline last year. We believe the fundamental picture is constructive and see the Singapore residential sector to be in the early stages of sustained upturn.

Fundamental Outlook Is Constructive

We expect home prices to rally 3% - 8% in 2018, which will be supported by a recovery in housing rents which are forecasted to increase 5% - 10%, a neutral legislative stance from the authorities and a buoyant en-bloc market. While rising rates will partially offset fundamental tailwinds, the overall impact will be limited with domestic mortgage rates forecasted to only increase 100 to 150 basis points from now to end 2020.

As a major proxy to the domestic housing market, the group sits on significant domestic land-bank and is poised to benefit from stronger home sales at their launch pipeline ahead, including New Futura and the 861-unit condominium project at Tampines Ave 10. In addition, we believe the group’s revised GBP 6.20 per share offer for its listed hotel subsidiary M&C, if successful, will be a potential positive catalyst for its share price.

Given stronger market conditions, we update our model for firmer ASP assumptions and lower our discount to RNAV from 20% to 10%, and fair value estimate increases from S$13.50 to S$15.30. Maintain BUY.

Source: OCBC Research - 15 Jan 2018