14-10-12: Prime properties face demand slowdown: Credit Suisse

Mindy Tan
The Business Times
Sunday, Oct 14, 2012

The latest round of property cooling measures is expected to make its impact felt on the high-end residential sector, with developers facing more overhang in the short term.

Prime properties in the core central region (CCR) in particular can expect demand to slow further, given the higher downpayment required (for investors affected by the lower loan-to-value ratio) or higher monthly mortgage instalments, which can be expected to increase 13-21 per cent depending on tenure, said Credit Suisse research analyst Yvonne Voon in a report released on Thursday.

"The high-end segment could also see vacancy risks arising from weak rental demand and unsold units," said Ms Voon.

According to statistics released by the Urban Redevelopment Authority (URA), there were 731 completed private unsold units in the CCR in Q2.

The rest of central region (RCR) had 428 units, and the outside central region (OCR) - which houses mass-market condos in suburban locations - had 74 completed private unsold units.

In a separate report issued by Savills Singapore, average monthly rent for luxury homes fell 2 per cent quarter-on-quarter, to $4.95 per square foot (psf) per month in Q3. This represents the fifth consecutive quarter of rental declines.

This is despite median rents for all condominiums (excluding executive condominiums) reaching a record high of $3.67 psf per month in August.

While demand for mass market homes too might be affected in the near term, headline prices should remain sticky, said Ms Voon.

This is because system vacancy rates stand at 6.8 per cent, well below the long-term average of 7.9 per cent.

In addition, developers may choose to delay property completion, supporting shorter-term prices, she said.

That being said, demand is expected to fall in the near term, with some buyers put off by the negative carry, as a shorter loan tenure translates to higher monthly instalments - which may prove unattractive if the rental income received is insufficient to cover the monthly instalments.

In addition, some investors may be inclined to "downtrade", opting for longer-tenure loans (capped at 35 years), but buying properties close to half the ticket size of what they would have been able to afford earlier, said Ms Voon.

Credit Suisse issued an "outperform" call on the stock of City Developments Ltd (CDL), noting that while the share price could take a hit if the developer faces pressure of lower sales volumes in the near term, such pullbacks may present an entry opportunity.

CapitaLand was its top pick. "CapitaLand today is much more diversified with a strong recurring income stream from its office, retail and fund management businesses . . . We expect CapitaLand's earnings momentum to improve in 2013 driven by CapitaMalls Asia's turnaround and better development profits in Singapore and China," said Credit Suisse.

CDL's counter ended trading unchanged at $11.57 yesterday while CapitaLand gained four cents to close at $3.18.