July 19, 2009


Home sales still going strong

Far from fizzling out, demand for entry-level homes has spilled over to high-end projects

By Fiona Chan

When private home sales unexpectedly jumped in February, in the thick of Singapore's worst-ever recession, pundits called it a false dawn and warned that the rally would not last.

But now, the market has sustained its rebound for five straight months and is expected to keep growing.

Figures released last Wednesday showed that last month's new home sales hit a record high of 1,825, while recent news reports indicate that this month's sales figures will still be strong.

All this has prompted previously sceptical analysts to turn more decidedly positive on the sector.

At least three research houses - UOB Kay Hian, DMG & Partners and DBS Vickers - are now overweight on Singapore property, which means they see property stocks as better valued compared with stocks in other sectors.

Why the change in sentiment? Recent data offers a whole host of reasons, according to the analysts.

One is that the worst of the economic crisis is over, and Singapore in particular looks to have turned the corner. Last Tuesday, the Government said the economy jumped 20.4 per cent between March and June to rise out of recession, pulling up market confidence and the full-year growth forecast along with it.

In the same quarter, developers sold 4,714 brand-new units - already more than the 4,370 they sold for the whole of last year.

The improvement in home sales is also spreading to more segments of the market, said UOB Kay Hian's property analyst Vikrant Pandey.

While the rally in private home sales started in entry-level homes - a result of pent-up demand from HDB upgraders and genuine owner-occupiers shut out of the last property boom - the positive sentiment has widened to include pricier units.

Sales of high-end and luxury homes have gained traction recently, with 'a steady increase noted in the number of transactions above $1,500 per sq ft since the beginning of this year', said Mr Pandey.

Last month, high-end sales were boosted by the 146 units sold in One Devonshire in Somerset, at a median price of $1,771 psf. Three units were also sold above the benchmark price of $3,000 psf: at The Orchard Residences, Nassim Park Residences and The Ritz-Carlton Residences.

Most importantly, the rebound is pushing property prices up in some projects - and buyers are still biting.

Despite prices increasing by 5.2 per cent on average last month, buyers seemed undeterred, said DMG analyst Brandon Lee.

'We attribute it to the buoyant HDB upgrader demand, pent-up demand, low interest rates and improved macro-economic landscape.'

More pent-up demand may still be on the way, from buyers who sold their previous units en bloc and have yet to buy another home, said DBS Vickers analysts Adrian Chua and Lock Mun Yee in a report published last week.

They also take heart from the fact that long-held fears of an impending surge of new units have failed to deflate the market.

'We believe we should not see a short-lived spike unless prices rise beyond economic fundamentals,' they added.

But not all analysts are so upbeat.

OCBC's Mr Foo Sze Ming has maintained a neutral rating on the property sector because he thinks that there will be no additional impetus for home sales to keep rising.

In fact, he said the number of unsold suburban homes rose last month for the first time in four months - evidence that the pent-up demand from HDB upgraders has been gradually met.

What is now helping to drive demand for new homes is sideline liquidity from investors who see a chance to get in on the action.

But he said it remains uncertain as to how long this can last. Unless wages start rising again or foreign funds start coming in to buy Singapore property - neither of which Mr Foo thinks is likely to happen soon - the recovery may well peter out.

Of the stocks that analysts are now bullish about, City Developments seems one of the most popular due to its relatively large exposure to the Singapore residential market.

UOB Kay Hian and DBS also like Ho Bee, which has both mid-end and high-end projects, and Allgreen, which has at least two mid-tier projects launch-ready.

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