Continued moderation in price increase. URA released 2Q11 real estate statistics last Friday which showed a seventh consecutive moderating in the private residential price index to a 2.0% QoQ appreciation versus 2.2% in 1Q11. Note that pace of moderation appears to be slowing with only a 0.2% drop in the rate of appreciation versus a more hefty 0.5% drop seen last quarter. By region, we saw the price index of the core central region (CCR) accelerate to 2.0% appreciation in 2Q11, and the rest of central region (RCR) and outside central region (OCR) decelerated to 1.1% and 1.7% for the quarter respectively.
Deceleration in OCR prices. Despite seeing OCR primary sales up 43% QoQ in 2Q11, prices slowed down to a 1.7% appreciation after a worryingly high 3.1% last quarter. We believe OCR prices decelerated despite dramatically higher volumes because the volume increase is mostly supplyled. Using URA primary sales data from Apr-Jun11, we saw the number of non-landed OCR units launched increase 64% QoQ while sales only increased ~40%. As a result, the take-up rate decreased from 98% (1Q11) to 87% (2Q11). Moreover, note that the price index for uncompleted OCR properties is mostly flat QoQ at 0.7%. In our view, this trend of supply-led sales and flattish primary OCR prices could continue going forward as the impact of the GLS supply comes into play more strongly. Note that developers have begun to price in weaker forward prices in recent residential government land sale (GLS) sites.
Supply in the pipeline continues to grow. The number of units in the pipeline (including units under consideration) increased to 87,242 units - an 8.8% increase QoQ. Unsold units in the pipeline (including units under consideration) increased 9.8% QoQ to 50,030 units. Total pipeline of units planned and under construction currently consists of 71k units, of which 33k falls into the OCR.
Recommend UOL. We judge the likelihood for further measures in 3Q11, beyond the BTO ceiling hike, to have cooled somewhat with the deceleration in OCR prices. We remain in a catch-22 situation whereby any pickup in price momentum would likely draw a prompt reaction from the government. 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. We have a BUY on UOL with a fair value estimate of $5.57 (at 20% discount to RNAV).
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