Mass Market set to outperform in Property Market

Feb 09 sales to hit 1,000 units. Early next week, URA will release the monthly private residential figures for Feb 09. We estimate transacted quantum to come in at ~1,000 units, representing a substantial improvement from the 107 units sold in Jan 09. These should come largely from mass market projects such as The Caspian, The Alexis and The Quartz. We recall Aug 07 was the last time the 1,000 mark was breached. We reckon a similar number of units were launched in Jan 09, with projects from the mass-mid market forming the bulk.

Prices down in prime region but flat within mass-mid market. With pricing now top of developers’ agenda, we are also seeing a gradual yet succinct narrowing of price disparity between homes within the mass and mid market segments. Despite the heavy volume here, we do not expect major shifts in average prices, possibly flat at S$700 and S$800 psf for mass and mid market respectively. As for the prime region, we project prices have furthered softened (-5% MoM to S$1,500 psf) due to paucity of transactions as buyers continue to steer clear of projects fetching ≥ S$1m.

Big guys join the party, but how sustainable? Since 3Q08, we believe most of the mass market projects were launched by private and niche developers. However, we note the fine take-up for Caspian and Alexis have incentivised the more established players to begin riding the (low lump sum) wave, i.e. UOL (Double Bay Residences), Wing Tai (Ascentia Sky) and City Developments (Livia and The Arte). Further, we are seeing more developers tweaking their building plans to better cater to the present preference of buyers. While we are impressed by developers’ adept ability to adjust quickly to the vagaries of buyers’ demands, we remain detractors of the current mass market frenzy. We reiterate our stance that demand here would gradually taper off with the worsening macroeconomic outlook, in addition to an expected softening in HDB resale prices.

More price corrections and incentives ahead. We note the increasing prevalence of a surrogate Deferred Payment Scheme (in the form of Interest Absorption Scheme) in most newly launched projects (albeit at a slight 3 – 5% premium), and also acknowledge its importance in driving sales. Some buyers continued to favor the rudimentary Progressive Recognition Scheme, which we believe is a combination of two factors – low interest rates and healthy cash position. Looking ahead, we predict more incentives would be put forward by developers in order to prop up demand, e.g. heftier discounts, renovation/furniture/fittings concessions, price appreciation guarantees and rental guarantees at a certain yield (most recent being Far East’s Vida and Soilbuild’s The Mezzo).

From our view, the property downcycle looks set to continue despite the mass market’s outperformance and hints of latent demand (good turnout at auction sales and throngs of crowds at mass-mid market show-flats).


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