Residential Property Market - Slower June sales reported (OCBC)

Maintain Neutral

Previous Rating: Neutral

Non-landed sales down 28% MoM. URA sales data reported 1,126 non-landed units were sold in Jun 11, a decrease of 28% compared to May 11. (Including ECs and landed units, we saw a total sales volume of 1,394 units.) We also saw 1,471 non-landed units launched in Jun 11 - up 22% MoM. The take-up rate in Jun 11 was sub-par at 77% and, as a result, we saw the inventory of unsold units increase 7.7% MoM to 4,675 units, representing roughly four months of sales.

Transactions dominated by OCR. We saw decreases in sales volumes, on a MoM basis, across all three regions, though the fall was smaller in the "outside central region" (OCR). Compared to the "core central region" (CCR) and "rest of central region" (RCR) which decreased 38% and 50% MoM respectively, OCR sales fell only 15%. In addition, launches and sales in Jun 11 continued to be dominated by OCR projects; 72% of all non-landed units launched in Jun 11 were in OCR while 70% of total sales were in OCR. On an individual project basis, three newly launched OCR projects, Woodhaven, Seastrand and The Miltonia Residences, made up 38% and 50% of total sales and units launched in the month, respectively.

Increased caution in the wind. While total sales for Jun 11 still came in above a thousand units which represent continued healthy demand in the market, we are beginning to see signs of increased caution from the developers. In our view, developers have been less enthusiastic in the residential GLS tenders over the last two months; in particular, estimated breakeven prices for winning tenders have came in somewhat below current market prices, suggesting that developers are building in a stronger likelihood of lower property prices in their bids. Looking ahead, we think this would likely continue as buyer sentiments moderate further amidst a hawkish government posture and the lack of clarity regarding the impact of the potential BTO income ceiling hike.

BUY UOL. While we believe liquidity is the over-arching impetus for sales momentum in the market, both buyer and developer sentiments continue to moderate due to policy overhang and expectations of an increased supply ahead. We maintain our NEUTRAL rating on the residential property sector. Our pick in this sector is UOL due to its limited residential exposure and the potential to pick up accretive acquisitions in a softer market ahead. Maintain BUY on UOL with a fair value estimate of $5.57 (at 20% discount to RNAV).