Property Sector Phillip Securities Research Pte Ltd 26 April 211 Residential sector Home prices: Property price index (PPI) of all private residential property increase 2.2% q-q from 194.8 to 199.1. PPI of non-landed private residential properties increased from 189.7 to 192.9, or 1.7% q-q growth, compared to 1.8% in the last quarter. Most segments see residential property prices in 1Q11 stabilized with growth rates moderated, but price remain high at the current level. Home sales: Primary residential sales in March 211, excluding executive condominiums, increased 25.9% m-m to 1,386 units, first rebound since Nov 21. On the y-y basis, sales were however lower by 21.3%. For 1Q211, there were 3,676 units sold, decreased 14. and 17.3% compared to 4Q1 and 1Q1 respectively. We believe the government will let the current supply-side pressures to take its toll, although we do not rule out entirely the possibility of further demand-side interventions given the property price indices remain at its high level. That aside, the relatively flat supply in 211 and 212 coupled with overall healthy economic fundamentals, we continue to hold the view that private housing price should stabilize and trend sideways for most of 211. However, property prices may see correction (possibly ~) in 212 as more units will be available for sale towards the end of 211. Office sector Office space in the central region of Singapore continued its price and rental up trend in 1Q11. PPI increased from 11.5 to 115.9 (4.9% q-q) while office rental index increased 5.4% to 168 in 1Q11. Vacancy rate of private sector office space in central region lifted slightly to 12.9% from 12.7% in the previous quarter. Due to the ample supply in 211, we expect vacancy rate to trend higher and lower rental reversion for the older generation grade-a office spaces as tenants continue to relocate to newer office building in downtown core. Rental hike at the new grade-a office space will be limited due to ample supply coming on stream. But with the current positive economic fundamentals, we expect a moderate growth of 3 to 6% in rental for Grade-A office in 211. Recommendations We continue to like OUE for its exposure in the office and hospitality sectors. We also like SC Global for its high margin spread in its ultra luxury residential projects, but possible risks lie on failure to achieve our estimated sales targets which could result in lowering its RNAV. We maintain our recommendations of Buy for OUE and SC Global, and Hold for Keppel Land and Ho Bee. Stocks RNAV Discount to RNAV Fair Value Previous Close Rating P/E P/B Keppel Land $ 4.92 $ 4.92 $ 4.4 Hold 6.1 1.5 OUE $ 4.28 $ 4.13 $ 3.18 Buy 4. 1.1 Ho Bee $ 2.59 4 $ 1.42 $ 1.48 Hold 3.54.74 SC Global $ 3. 4 $ 1. $ 1.4 Buy 4..9 Analyst Bryan Go 65 6531 1792 FAX 65 6536 4435 gock@phillip.com.sg Web: www.poems.com.sg MICA (P) 4/1/211 Ref No: SG211_128
Home prices URA released on Monday the 1Q11 statistics for private residential properties in Singapore. Property price index (PPI) of all private residential property increase 2.2% q-q from 194.8 to 199.1, but pace of growth continue to slow since 3Q9. PPI of landed property increased from 212.9 to 221.2, or 3.9% q-q growth, compared to 5. growth in the previous quarter. PPI of non-landed private residential properties increased from 189.7 to 192.9, or 1.7% q-q growth, compared to 1.8% in the last quarter. In the core central region (CCR), PPI of non-landed private residential increased from 22.4 in 4Q1 to 24.6 in 1Q11, or 1.1% q-q growth compared to the 2.2% in the previous quarter. Non-landed residential property prices in the rest of central region (RCR) increased 2% q-q from.8 previously to 184.5 in 1Q11, compared to 1.9% growth previously. In the outside central region (OCR), non-landed residential property prices experienced a stronger growth in 1Q11, increased 3.9% from 178.2 to 183.7, compared to 2.6% growth in the last quarter. In the HDB segment, resale prices index increased from 172 to 174.8, continued to stabilize with 1.6% q-q growth, moderated from 2. seen in the last quarter. Figure 1: PPI of Private Residential Properties (4Q98=) 22 PPI of Private Residential Properties q-q growth (RHS) Q1 1Q1 2Q1 3Q1 4Q1 5Q1 6Q1 7Q1 8Q1 9Q1 2 1 - - -1-2 Figure 2:PPI of Landed Residential Properties 24 22 PPI of Landed Residential Properties q-q growth (RHS) Q1 1Q1 2Q1 3Q1 4Q1 5Q1 6Q1 7Q1 8Q1 9Q1 2 1 - - -1-2 Figure 3:PPI of Non-Landed Residential Properties Figure 4: PPI of Non-landed Residential Properties in CCR, RCR and OCR PPI of Non-Landed Residential Properties q-q growth (RHS) Q1 1Q1 2Q1 3Q1 4Q1 5Q1 6Q1 7Q1 8Q1 9Q1 2 1 - - -1-2 22 4Q1 4Q3 5Q1 CCR RCR OCR 5Q3 6Q1 6Q3 7Q1 7Q3 8Q1 8Q3 9Q1 9Q3 24.6 184.5 183.7 Figure 5: HDB Resale Price Index 19 17 15 13 11 9 7 5 Q1 HDB Resale Price Index q-q growth (RHS) 1Q1 2Q1 3Q1 4Q1 5Q1 6Q1 7Q1 8Q1 9Q1 1 - - Source: HDB, Phillip Securities Research 2
Home sales URA sales data shows primary residential sales in March 211, excluding executive condominiums, increased 25.9% m-m to 1,386 units, first rebound since Nov 21. On the y-y basis, sales were however lower by 21.3%. For 1Q211, there were 3,676 units sold, decreased 14. and 17.3% compared to 4Q1 and 1Q1 respectively. In the geographical segments, CCR saw revive in primary sale activity with 263 units sold by developers in March, compared to 141 units in February (86. m-m). Allgreen Properties sold 76 units of its Skysuites@Anson at median price of $2,19 psf. In the RCR, developers sold 492 units in the month, compared to 223 units in February (.6% m-m). There were units of Questa@Dunman sold by Hoi Hup (median price $1,319 psf), topped the RCR segment. Things were a little different In OCR, developers sold 788 units in the month, compared to 864 units sold in February, a drop of 8.8%. CDL sold the most units in this region, unloaded 255 units from its Sengkang project, H2O Residences, at median price of $943 psf. The weaker y-y figures imply the latest round of cooling measures implemented by the government did taper off the buying sentiments in the market, but the extent of drop was less than the 2 overall that we were expecting. The stronger m-m figures in March also suggest that real buyers and investors are returning to the property market, particularly in the CCR and RCR. March also sees the take-up rate of 111.2%, or number of units sold higher than number of units launched in the month. Figure 6: Total units of private residential properties sold in regions 3 CCR RCR OCR Units launched in the month 25 15 5 Jun-7 Sep-7 Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 Jun-9 Sep-9 Dec-9 Mar-1 Jun-1 Sep-1 Dec-1 Mar-11 Figure 7: Quarterly private residential properties sold in regions Region 1Q1 2Q1 3Q1 4Q1 1Q11 q-q change y-y change All 4446 4133 373 4299 3676-14. -17.3% CCR 1942 715 516 997 64-39.4% -68.9% RCR 735 177 1378 121 1116 9.3% 51.8% OCR 1769 1648 9 3352 2585-22.9% 46.1% Residential units supply in the pipeline Data from residential supply in the pipeline shows completion in 211 and 212 remain relatively flat at ~1k units per year, and the numbers of annual completion are expected to increase to 13k in 213, 19k in 214 and 29.5k in 215. Figure 8: Private sector residential units completion and supply in the pipeline 35, 3, 25, Supply in pipeline (with planning approval) Supply in pipeline (under construction) Annual or YTD completion 1-year average = 857 units 2, 15, 1, 5, 1996 1997 1998 1999 1 2 3 4 5 6 7 8 9 21 211 212 213 214 215 >215 We believe the government will let the current supply-side pressures to take toll, although we do not rule out entirely the possibility of further demand-side interventions given the 3
property price indices remain at its high level. That aside, the relatively flat supply in 211 and 212 coupled with overall healthy economic fundamentals, we continue to hold the view that private housing price should stabilize and trend sideways for most of 211. However, property prices may see correction (possibly ~5 %) in 212 as more units will be available for sale towards the end of 211 following the series of land sales conducted by the government. Figure 9: Number of unsold private residential units from projects with planning approvals by market segment Figure 1: Affordability of condominium 5 45 4 35 3 25 15 5 CCR RCR OCR (x) 5 48 46 44 42 4 38 36 34 32 3 sqm Condo price / annual income Condo PPI (RHS) 19 17 15 13 11 Q1 Q3 1Q1 1Q3 2Q1 2Q3 3Q1 3Q3 4Q1 4Q3 5Q1 5Q3 6Q1 6Q3 7Q1 7Q3 8Q1 8Q3 9Q1 9Q3 Source: URA, CEIC, Phillip Securities Research Figure 11: Mortgage burden.9.8.7.6.5.4.3.2.1. (x) Mortgage burden 3m Sibor (RHS) 8% 7% 6% 4% 3% 2% 1% Figure 12: Gross rental yield of Condominium 5.3% 5.1% 4.9% 4.7% 4. 4.3% 4.1% 3.9% 3.7% 3. Gross Rental Yield of Condominium Condo vacancy rate (RHS) 11% 9% 8% 7% 6% 4% 3% Q1 Q3 1Q1 1Q3 2Q1 2Q3 3Q1 3Q3 4Q1 4Q3 5Q1 5Q3 6Q1 6Q3 7Q1 7Q3 8Q1 8Q3 9Q1 9Q3 5Q3 6Q1 6Q3 7Q1 7Q3 8Q1 8Q3 9Q1 9Q3 6Q3 6Q4 7Q1 7Q2 7Q3 7Q4 8Q1 8Q2 8Q3 8Q4 9Q1 9Q2 9Q3 9Q4 21Q2 21Q4 Source: URA, CEIC, Phillip Securities Research Source: URA, CEIC, Phillip Securities Research Figure 13: Median Rental 5 45 4 35 3 25 2 5Q3 6Q1 Median Rental ($psm pm) Vacancy Rate of Non-Landed Residential Units (RHS) 6Q3 7Q1 7Q3 8Q1 8Q3 Source: URA, CEIC, Phillip Securities Research 9Q1 9Q3 11% 9% 8% 7% 6% 4% 3% 4
Office sector Office space in the central region of Singapore continued its price and rental up trend in 1Q11. PPI increased from 11.5 to 115.9 (4.9% q-q) while office rental index increased 5.4% to 168 in 1Q11. Median price of office space in central region is at $3 psf while median rental is at $9.29 psf pm in 1Q11. Vacancy rate of private sector office space in central region lifted slightly to 12.9% from 12.7% in the previous quarter. Figure 14: Price and rental index of office space in central region 23 21 19 17 15 13 11 9 7 5 Q1 Q3 1Q1 1Q3 Property Price Index of Office Space in Central Area Rental Index of Private Sector Office Space in Central Region 2Q1 2Q3 3Q1 3Q3 4Q1 4Q3 5Q1 5Q3 6Q1 6Q3 7Q1 7Q3 8Q1 8Q3 9Q1 9Q3 168 115.9 Figure 15: Median price and rent of office space in central region Median price S$psf (LHS) Median rent S$psf p.m.(rhs) 12 1 6 9.29 3 1 8 6 4 2 4 199Q1 1991Q1 1992Q1 1993Q1 Q1 1Q1 2Q1 3Q1 4Q1 5Q1 6Q1 7Q1 8Q1 9Q1 Figure 16: Vacancy rate and median rent of private office space in central region % 2 18 16 14 12 1 8 6 4 2 1992Q1 1993Q1 Vacancy rate (LHS) Q1 1Q1 Median rent S$psf p.m.(rhs) 2Q1 3Q1 4Q1 5Q1 6Q1 7Q1 8Q1 9Q1 S$ psf 12 1 8 6 4 2 In the downtown core area, supply outstripped demand with supply came mainly from partial completion of Ocean Financial Centre (Keppel Land) and OUE Bayfront (OUE) with TOP awarded to approximately 522k sq ft and 39k sq ft of the their GFA respectively. Net demand for office space in downtown core remains strong at 377k sq ft. Figure 17: Net demand and supply of private office space in downtown core 5
1 96 94 92 6 9 4 88 86 84-6Q1 6Q3 7Q1 7Q3 8Q1 8Q3 9Q1 9Q3-4 82-6 - 78 ' sf Net supply (LHS) Net demand (LHS) Occupancy rate (RHS) % Figure 18: Annual net demand and supply of private and public office space (Island-wide) 5 4 3 1-yr avg D =.8 mil sf - 1 2 3 4 5 6 7 8 9 21 211 YTD - ' sf Net Supply (LHS) Net Demand (LHS) Occupancy Rate (RHS) Office space supply in the pipeline As of 1Q11 data, there will be ~3.6mil sq ft of office space completing in 211, and over 2.1mil sq ft and 3mil sq ft completing in 212 and 213 respectively. Other than 211 and 213, the annual supplies seem comparable to those net demand in the boom years that could hit >2mil sq ft p.a. Figure 19: Supply in the pipeline as of 1Q211 94 92 9 88 86 84 82 78 76 % >215 215 214 213 Completed Under Construction Planned 212 211 5 15 25 3 35 4 ' sf Due to the ample supply in 211, we expect vacancy rate to trend higher and lower rental reversion for the older generation grade-a office spaces as tenants continue to relocate to newer office building in downtown core. Rental hike at the new grade-a office space will be limited due to ample supply coming on stream. But with the current positive economic fundamentals, we expect a moderate growth of 3 to 6% in rental for Grade-A office in 211. Do note that the supply in the pipeline has not taken into account the possible deduction of available office space due to building redevelopment and conversion into residential use. 6
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