Effects of cooling measures felt

Nomura remains bearish on property sector in Singap0re

(Abstract from TodayOnline 16th Nov, 2009 by Tan Hui Leng)

SINGAPORE - Recent cooling measures, coupled with a continued decline in rents, are likely to weigh on property stocks.

Japan-based investment banking and brokerage group Nomura said in a research note released last Friday that it has maintained a "bearish" stance on the property sector here.

Recently, the Government put in a series of measures to curb speculation in the over-heating property market. This includes the removal of interest absorption schemes. This will likely prompt "a reassessment of asset price expectations as yields fall", said analysts Tony Darwell and Sai Min Chow.

"With pre-sale take-up likely to slip, risks remain for a rebuild in unsold inventory and a resultant correction in asset prices," the Nomura analysts said.

Property prices rose about 16 per cent on-quarter in the third quarter but rents fell as much as by 12 per cent on-quarter. This has resulted in a 50 to 35 basis points on-quarter contraction in property yields. One basis point is equal to 0.01 per cent.

"Higher vacancy amid weak leasing demand (evident in recent rental trends) is likely to place further pressure on yields, potentially compromising the sustainability of current asset price," said the analysts.

Despite the signs, Singapore developers "continue to price in over-optimistic expectations for the physical market".

The analysts noted that unsold pre-sale inventory has rebounded to 9,215 at the end of the third quarter this year - up from 8,637 at end of the second quarter.

"With increased stock availability, we believe price expectations will be reassessed, leading to a slowdown in pre-sale take-up rates, evident in recent new launches," said Nomura.

"With developer stocks' price performance highly correlated to volumes, the listed developers look exposed."

Nomura projects a "W-shaped" recovery in the residential property sector and it projects asset prices to correct by 10 to 15 per cent.

However, CIMB analyst Donald Chua is less bearish on the sector despite the Monetary Authority of Singapore raising caution over potential risks of exuberance in the sector in its latest Financial Stability Review.

But he said the "euphoria" in the property market has already abated following the announcement of sentiment-cooling measures two months ago.

CIMB is also comforted by positive trends in the strong household balance sheets and outstanding housing loans by loan-to-value. It maintains an Overweight rating in the sector as it sees the next phase of re-rating for property shares coming from a recovery in the real economy.

The October data on private residential developer sales is expected to be released by the Urban Redevelopment Authority today.

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