Maintain OVERWEIGHT, with APAC Realty and CapitaLand as Top Picks.
Developers fatigue slowly setting in. YTD, 20 en bloc sites have been sold
with a total value of SGD6.3bn, compared to SGD8.2bn from 28 sites sold last
year. While the en bloc market remains still fairly active – with more than 100
sites reportedly available in the pipeline – our channel checks show that
developers have become very selective, as increasing supply pipeline with en
bloc is likely to add 15-20,000 units, land price expectations still remain lofty (10-
30% higher), and many developers have sufficiently restocked their landbanks.
Developers are also keeping an eye on the sites that would be made available in
the 2H18 government land sales programme (to be released in June). While we
expect the overall en bloc value to surpass that of last year’s, we expect the
market to peak by 2Q-3Q18.The fatigue is starting to be reflected in the premium
developers have paid over the reserve price, which has halved to 5% this year
when compared to 10% in 2017 (Figures 8 and 9).
Tighter policy measures lower en-bloc projects’ attractiveness. Some of the
key recent policy changes that would have an effect on en bloc sales include:
i. Slight increase in buyer’s stamp duty and higher development charge rates;
ii. A requirement of the Land Transport Authority (LTA) study for traffic impact
due to the redevelopment of en bloc sites;
iii. Tightening of development bank loans by the Monetary Authority of
Developers are also bound by the additional buyer’s stamp duty rules – by which
they have to build, develop and sell the entire project within a 5-year time frame,
or face a stiffer 15% penalty. We believe that the above measures would result in
the developers shifting their preference towards small- to mid-sized sites that
have good location attributes and amenities.
Near-term outlook is positive, long-term sustainability remains uncertain.
Overall, we expect residential prices to rebound by 5-10% in 2018 (from 3-7%),
as the near-term market remains well supported – with ample liquidity from en
bloc sales, a lower unemployment rate (2.1%), and higher GDP growth.
However, we remain cautious on the longer-term outlook and sustainability of
steep price increases, as key long-term factors – such as population growth
(tighter immigration policies), rental market and divergence in Housing
Development Board (HDB) resale flat prices (which are still declining) – remain
weak. Additionally, the possibility of faster rate hikes and a volatile global
macroeconomic environment also pose a threat to smooth recovery.
Maintain OVERWEIGHT. We expect transaction volumes to remain robust (10-
15% higher in 2018) supported by en bloc demand and GDP growth. APAC
Realty is the Preferred Pick in this regard, benefitting from higher primary and
secondary volumes. In the big-cap space our Top Pick is CapitaLand, as we see
it as a laggard play. The company has also been actively addressing market
concerns by rationalising its China portfolio, boosting ROEs through an assetlight
approach, and actively recycling its capital on higher-yielding assets. City
Developments is also expected to benefit from its strategic landbanking and the
better outlook for its hospitality portfolio. (Read Report)
Source : RHB Research
Singapore Real Estate - Are We Nearing The Peak Of The En Bloc Cycle?
Shared By Stock Fanatic on Wednesday, April 11, 2018 | 11.4.18
Posted on Wednesday, April 11, 2018 |
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