Residential Property Sector - URA flash update shows mass market deceleration(OCBC)

Maintain Neutral

Further moderation in price appreciation. URA's flash estimate for the private residential property index for 2Q11 showed a 1.9% appreciation compared to 2.2% in 1Q11. This is the 7th consecutive moderation in price increases since 4Q09, after the first round of cooling measures in Sep 09. Prices in the Core Central Region (CCR), Rest of Central Region (RCR) and Outside Central Region (OCR) increased 1.6%, 1.2% and 1.6% in 2Q11, respectively. In 1Q11, prices increased 1.1% in the CCR, 2.0% in the RCR and 3.1% in the OCR.

Deceleration in OCR prices. We continue to see the OCR leading price appreciation across all three regions. A more muted 1.6% increase in 2Q11, however, represents a deceleration of the OCR uptrend seen over the last two quarters (2.1% in 4Q10 and 3.1% in 1Q11). We also see RCR price appreciation decelerating to 1.2% in 2Q11 from around 2.0% in the last two quarters. In our view, this is due to more cautious buyer sentiments, particularly in the mass segment. Buyers could be waiting for more clarity of the impacts from an increased BTO supply to 26K units in FY11 and a possible hike in BTO income limit from S$8k to S$10K. We also note that Minister for National Development Khaw Boon Wan's blog "Housing Matters" has gained significant traction with the market. A recent blog post titled "My worries" where the Minister warns that "unsustainable, rapid price increase brings with it enormous risks" have likely chilled sentiments further.

CCR price appreciation picks up. Interestingly, we see a pickup in price appreciation in the CCR to 1.6% in 2Q11 from 1.1% last quarter. Over the last three quarters, we had saw the bulk of the CCR price appreciation come from completed unit sales, and we think the current environment of liquidity and healthy rental carry likely continued to attract buyers to completed CCR units. Moreover, this could be due to pent-up demand after traditionally slow CCR sales during the Chinese New Year period in the first quarter.

BUY UOL. As the private residential markets moderates further, we start to see signs of developers becoming more cautious in land-banking. Recent bids in government land sales (GLS) tenders show that developers are anticipating weaker prices ahead. With limited land-bank, UOL has little residential exposure and could replenish its land-bank as the environment softens further. Maintain BUY at a fair value of $5.57 (at 20% discount to RNAV).