Amid a broad slowdown in prices for the Singapore residential market in the 1Q2022, analysts are still remaining positive on the property sector.
On April 1, flash estimates released by the Urban Redevelopment Authority (URA) revealed that the property price index (PPI) for the 1Q2022 showed an overall slower q-o-q increase of 0.4% compared to the 5% q-o-q growth in the 4Q2021.
Prices of non-landed homes dipped by 0.6% q-o-q due mainly to the decline seen in the core central region (CCR) and rest of central region (RCR). During the quarter, the CCR and RCR saw decreases of 0.5% and 3.0% q-o-q respectively, reversing from the q-o-q increases of 2.7% and 5.7% from the previous quarter.
Prices of non-landed homes in the outside central region (OCR) rose albeit at a slower pace of 1.9% q-o-q, compared to the previous quarter’s 5.7% q-o-q surge.
Prices for landed property rose by 4.0% q-o-q, while prices for resale Housing Development Board (HDB) flats registered a 2.3% q-o-q increase, slightly moderating from the 4Q2021’s 3.4% q-o-q rise.
Overall transaction volumes during the quarter fell 45% y-o-y to 5,035 units, thanks to a bigger decline in the primary market. The primary market fell 55% y-o-y to 1,844 units in the 1Q2022, while the resale market saw a slower decline of 39% y-o-y.
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According to DBS Group Research analysts Derek Tan and Rachel Tan, the lower prices and transaction volumes came as no surprise to them as they see buyers waiting it out in response to the cooling measures introduced by the Singapore government in December 2021.
The “wait and see” approach is also exacerbated by the ongoing geopolitical uncertainties and the rising cost of living, which is potentially eroding household disposable incomes, note the DBS analysts in their April 4 report.
Furthermore, there were lesser major new launches in the 1Q2022, with the only one being strata-landed development Belgravia Ace. “This may have contributed to the dip in overall sales for 1Q2022,” the analysts say.
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Looking at the index’s mixed performance, the analysts deduce that first-time home buyers and upgraders continue to remain property buyers, as they are least impacted by the recent measures.
“We estimate that overall primary market transactions to range 8,000 – 8,500 units with resale transactions averaging 9,000 – 10,000 units in 2022,” the analysts write.
Looking ahead, the analysts at DBS see the continued strength of the HDB index lending support to the property market, as new homeowners are likely to look at resale units instead of waiting for new build-to-order (BTO) projects instead. Resale HDB flats are also usually located in more mature town centres, which are usually perceived as more convenient with the variety of facilities and food options available.
The strong performance of the HDB index is also likely to see continued demand for private properties in 2022 thanks to HDB residents looking to upgrade their homes. In 2022 alone, some 30,000 HDB flats will have reached their minimum occupancy period (MOP), which “subject to economic conditions not deteriorating further, upgrader demand will likely remain stable in 2022”, the analysts say.
Going into the 2Q2022, the analysts at DBS say the response to new launches during the period is a key data point to watch.
“Based on media and various sources, we understand that close to [around] 1,450 new homes could be potentially launched in 2Q2022. [The] First to hit the market will likely be 407-unit Piccadilly Grand (developed by the City Developments Limited (CDL)-MCL consortium in the RCR region) to be launched in April 2022 and 617-unit North Gaia (developed by Sing Holdings),” they write.
“With pricing estimated to be north of $2,000 psf for [Piccadilly Grand], strong sales momentum may set the tone for further stabilisation in prices in 2022,” they add.
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On this, DBS’s Derek Tan and Rachel Tan believe that property developers in Singapore are offering good value considering that the FSTREH Index at 0.55x P/NAV is at -1 standard deviation of its five-year mean.
“While we have seen a re-rating in developer prices in recent times, we believe that strong property sales momentum will be a catalyst for the continued performance in the developers,” the analysts say, with their preferred picks being CDL and Ho Bee Land.
CGS-CIMB Research analyst Lock Mun Yee has also indicated her preferred picks as CDL and UOL Group among the “overweight” Singapore property sector.
“Even after the recent share price hikes, developers’ valuations still look inexpensive to us, trading at a 41% discount to revised net asset value (RNAV), close to 1 standard deviation below the long-term mean discount,” she writes.
“We prefer developers with visible residential pipelines and strong balance sheets that would enable them to tap into any opportunities during this slower cycle,” she adds.
In her report dated April 1, Lock notes that the slowdown in price momentum came on the back of slower home sales.
“New home sales for the first two months of 2022 totalled 1,207 units, 47% lower than the same period last year. Meanwhile, according to Singapore Real Estate Exchange (SRX) data, private resale transactions declined 23.9% y-o-y in February, while HDB resale volume dipped 12% y-o-y,” she writes.
That said, Lock is still upbeat on the sector, as she keeps her primary home sales volume estimates at 10,000 units in 2022, or close to that at the sector’s 2020 levels.
“In terms of price, we retain our expectation for private home prices to rise by 0-5% in 2022, broadly in tandem with GDP growth projections,” she says.
“With the recent relaxation of safe management measures to allow larger group sizes of 10 people and increased capacity limits, we believe viewings at sales galleries could improve and potentially translate into better buying interest. Relaxation of border restrictions could also enable more foreign buyers to view potential property purchases,” she adds.
Catalysts for the re-rating of the sector include good sell-through rates for new launches, while faster-than-expected interest rate hikes and a further round of property cooling measures are potential downside risks.
Lock has given both CDL and UOL Group “add” calls with target prices of $8.97 and $8 respectively.
Shares in CDL, Ho Bee Land and UOL Group closed $8.21, $3.06 and $7.22 respectively on April 7.
