Well calibrated land supply for 2H18. The Government is maintaining a steady supply of residential land under the 2H18 Government Land Sale (GLS) Programme. There will be five sites on the confirmed list (including Executive Condominium (EC) and white sites), and seven on the reserve list, which together can yield 8,040 units. The supply is similar to land released under the previous two programmes (Figure 3), indicating that the Government is mindful of supply building up and is careful to not over flood the market. We see this as a neutral stance and do not expect any further cooling measures in the near term.
Expecting strong demand for GLS sites. All residential sites in the confirmed list are well located within close proximity to the MRT, and should attract strong interest from developers. We expect strong interest from developers (overseas and local) for the Kampong Java and Sims drive sites with each expected to garner more than 10 bids. The Pasir Ris Central white site is also expected to see strong interest considering the lack of new launches in the area. We also expect developers to trigger the Anchorvale crescent (EC) site from the reserve list considering limited supply of ECs in the market.
En bloc cycle has peaked. With the availability of plum sites in the GLS programme, sufficient restocking of landbank, and a build-up in the supply pipeline, we reiterate our view that the en bloc cycle has peaked, and is expected to slowdown in 2H18 (refer also to our previous report here). YTD, 34 en bloc sites (Figures 10 & 11) have been sold, with a total value of SGD10.1bn, surpassing the SGD8.2bn from 28 sites sold last year. While this year could potentially set a new record for en bloc sales in terms of total transaction value (previous high of SGD11.4bn in 2007), our channel checks with developers indicate that they have become very selective, with preference towards small to medium-sized sites primarily in the high-end market.
Near term outlook is positive, long term sustainability uncertain. Flash estimates from the URA shows that residential prices rose 3.4% in 2Q18, following a 3.9% increase the previous quarter. Prices have risen 9% since bottoming out in 2Q17 but remain 4% below its 3Q13 peak, offering room for growth. Overall, we expect residential prices to rebound by 5-10% in 2018 and 2019, as the market remains well supported with ample liquidity from en bloc sales, a lower unemployment rate, and stable GDP growth.
However, we remain cautious on the longer term outlook and sustainability of such steep price increases, as key long term factors such as population growth (tighter immigration policies), rental market, and divergence in HDB resale prices. Additionally, the possibility of faster rate hikes and a volatile macroenvironment also pose threats to a smooth recovery in the industry.
CapitaLand - Technical Analysis
Source : RHB Research