Property Sector: Playing the absolute numbers game (DBS)

By:Adrian Chua

The media reported today that a number of units at Alexis have appeared on the subsale market. Some mass market projects are also looking to be relaunched - with a discount - to woo pent-up demand, as developers take the opportunity to move some unsold stock. However, pent-up demand on the high-end market is still lacking, and it is this segment which reflects confidence more succinctly compared to the mass market, which tends to be dominated by owner-occupiers. Pent-up demand in select segments and discounting by developers do not signal a recovery. Maintain Cautious, and avoid high-end plays like SC Global (Fully Valued, TP S$0.42), Ho Bee (Fully Valued, S$0.34) and Wing Tai (Fully Valued, S$0.5Cool. Our buy calls are City Dev (Buy, S$6.74) and Wheelock Properties (Buy, S$1.1)

Alexis Units on Offer in Subsale Market. There were media reports today that a number of units at Alexis, which was sold out this weekend, have appeared on the subsale market.Units are reportedly going for a 10% premium to sale price. At the highest reported ASP of c.S$1,100 psf sold by the developer, this would translate to an offer price on the subsale market that is close to the peak S$1,250 psf achieved by nearby The Anchorage back in 1Q08 (notwithstanding the fact that said Anchorage unit is 144sqm with a price tag close to S$2mil). This reiterates what we had indicated in our earlier note on the Alexis - that the small quantum (absolute number) is what is driving sales for the project.

Price-Cutting By Developers, Sensing Momentum. This does not change the fact that there are some notable developers that have made the move to discount prices for some of their unsold-but-launched units, despite the fact that these developments were already largely below the S$800K "comfort zone" in the first place. In other words, developers are taking the opportunity of the appearance of pent-up demand in the mass market to move some unsold stock, albeit at a discount - which is different from developers suddenly realising that S$800K is a "comfort level". There is a fine line between finding an excuse and finding a reason. As reported, City Dev has relaunched a small number of units (30-50 units) at Livia at a c.5% discount to its previous launch price of around S$650 psf. We also understand that F&N will be relaunching some less-choice units at Waterfront Waves (Bedok Reservoir) at around S$650 psf, about 15-20% below its launch price of c.S$800 psf. GuocoLand will also try to move its remaining 182 unsold units at The Quartz (Buangkok) at around S$595 psf, which is just above our breakeven estimate and about 10% below its launch price of c.S$650 psf. It has good reason to do this - the project obtains TOP middle of this year, and the pressure to sell the remaining units will start to mount.

Maintain Cautious, Avoid High-End Plays. Many of the development looking to be relaunched (as highlighted above) have a substantial number of unsold units. Given that these developments have seen slow sales over the past few months, we believe the developers of these projects are now taking the opportunity to move more stock upon the sign of pent-up demand, and trading ASPs for sales, which has long been factored in and expected by the market. Pent-up demand on the high-end market, however, is still sorely lacking. Any developer looking to price above S$1,000 psf would have to take a leaf out of Alexis' book - play the absolute numbers game and go for smaller units. Unfortunately, confidence in the overall physical market is derived less from mass market offerings (which cater more to owner-occupation). Evidence of pent-up demand and developers discounting their unsold mass market properties to move stock do not signal a recovery, in our opinion. We remain Cautious on the developers and would avoid the high-end names - which are seeing no signs of pent-up demand as yet. We have Fully Valued calls on SC Global (Fully Valued, TP S$0.42); Ho Bee (Fully Valued, S$0.34) and Wing Tai (Fully Valued, S$0.5). Our buy calls are City Dev (Buy, S$6.74) and Wheelock Properties (Buy,S$1.1).