May home sales close to previous peak

URA released May new home sales: New units sold were close to the previous peak of 1,700+ units for a single month in Aug 07, at 1,668 units.

This is the fourth consecutive month that monthly new home sales had exceeded 1,000 units. Caspian was the first project to be released in early 1Q09 at substantially reduced prices which drew in strong demand. Since then, interest in properties has changed dramatically to provide what must be the biggest window for developers to clear stocks in years. While we remain sceptical of the sustainability of demand and speed of recovery in the sector, we would like to look at positives from this set of data.

Demand spilling over to prime districts; high-end units seen to be moving. Compared with the previous few months, demand was more evenly split between Outside Central Region (OCR), Rest of Central Region (RCR) and Core Central Region (CCR). Most of the demand generated in the CCR came from The Wharf (ASP: S$1,186psf, 140 units) and Martin Place Residences (ASP S$1,423psf, 186 units). These have been priced at 25-30% below peak or initial launch prices, deemed as good value by buyers. There was a 5-7% increase in achieved prices in May. An encouraging sign is that these units are not shoe-sized units, with 2-3 bedders at an average 1,100-1,400sf. Bellevue, a high-end development by Wing Tai with an average size of more than 1,300sf, also benefited from decent sales in May (23 units sold at ASP of S$1,649psf).

Inventory draw-down a very good sign. We like the fact that the volume spurt in the last few months has cut down developers’ inventories meaningfully. On our numbers, we estimate that total unsold stock had fallen from 42,000+ sf at end-1Q09 to 39,600+ sf in May. This number has the potential to fall to 35,000+ sf by end-2009, approaching 2006 levels, as developers clear stock more aggressively in the months to come. This 35,000sf would reflect 4-4.5 years of average annual demand vs. 5.5 years of slack six months ago.

Low interest rates, IAS and price discounts fuelling buyers. First-year interest rates average 1.5-2% from most banks, based on the current 3-month SIBOR of 60+bp. Coupled with the Interest Absorption Scheme (IAS), many buyers are finding it easy to commit to a property today. However, the risks come if interest rates begin to rise with the quality of jobs and pay likely to deteriorate. Leasing activity remains weak, which would put pressure on the asset values of in-coming supply in the next year.



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