• Strongest growth since 2Q10
• Buyer sentiment to remain firm
• Top picks: CDL, UOL and CAPL

3.1% QoQ Growth in 1Q18 URA Flash Estimates

Based on URA's flash estimates released yesterday, Singapore's private residential property price index grew 3.1% QoQ in 1Q18 (transactions up till mid-Mar). This compares to the 0.8% QoQ increase registered in 4Q17 and was the third consecutive quarter of sequential growth. We deem this as a strong set of numbers as we were previously projecting residential prices to grow 3% - 8% this year, while 1Q18’s flash estimates also represent the highest QoQ increase since 2Q10 (+5.3%). We now expect the full-year growth figure to come in at the upper-end of our forecast or even potentially exceeding it.

Increase Driven Largely by Core Central Region

As a breakdown, prices of non-landed private residential properties jumped 5.0% QoQ in Core Central Region (CCR); prices in Outside Central Region (OCR) rose 3.8% while prices in the Rest of Central Region (RCR) increased by 1.1%. We believe the firm CCR price increase was driven largely by City Developments Limited’s (CDL) New Futura and GuocoLand’s Martin Modern. We note that buyer sentiment remains buoyant.

CDL announced late last month that The Tapestry project sold 70% of the 450 units released (total: 861 units) over the first weekend of launch (as at 5pm on 25 Mar) at an average selling price of S$1,310 psf. Upcoming launches such as Park Place Residences (second phase) by Lendlease would likely generate keen interest, in our view.

Valuations Remain Compelling for Developers

The FTSE ST Real Estate Holding & Development Index (FSTREH) is currently trading at a blended forward P/B ratio of 0.67x. We view this as compelling as it comes in at 0.84 standard deviations below the 10-year average (0.80x). Maintain OVERWEIGHT on the Singapore residential sector.

Our top picks are City Developments Limited [BUY, FV: S$15.91], UOL Group Limited [BUY, FV: S$10.63] and CapitaLand Limited [BUY, FV: S$4.26]. One potential downside risk could come from further tightening measures introduced by the government if prices continue to gain traction strongly, but this may be mitigated by more supply from upcoming government land sales and re-launches from en-bloc projects.

Source: OCBC Research - 3 Apr 2018