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Friday, May 29, 2009

Property: Gradual Transition From Mass-Mid Market To Prime

Interest flows from mass-mid market to prime. We visited several re-launched projects last weekend, including two prime ones along the River Valley/Martin Road stretch – CapitaLand’s 186-unit The Wharf Residences (WR) and F & N’s 302-unit Martin Place Residences (MPR).

Both projects generated substantial turnout, mostly Singaporeans. There was significant buying interest, evidenced by the purchase of slightly over 100 units of MPR and 109 units of WR since their re-launches on Friday. Prior to their re-launches, WR only sold 24 units, while MPR only attracted 28 buyers. We believe majority of the buyers are specu-investors either looking to flip or rent, as 2-bedders drew the highest level of buying activity, while 3-bedders and above were slow to take off.

Further, buyers were not mindful of the units’ views, with the lowest floor unit transacted at the quickest pace due to their lower price (on an S$psf basis) as compared to upper levels. We gathered that 85 units of WR were already snapped up by Friday evening (all 2- bedders), causing potential buyers to throng to MPR during the weekend. For WR, most agents also had standby cheques from their clients if units were returned.

Downward price adjustment biggest draw. We believe the downward price adjustment ranks as the biggest attraction for buyers to commit, as the re-adjusted prices represent more upside potential than downside risks, especially within the River Valley area. For WR, the selling price of S$1,050 – 1,300 psf equates to ~ 20% off the previously-transacted price of S$1,430 -1,700 psf. There was also a similar price cut of ~ 20% for MPR, current S$1,350 – S$1,500 psf vs. S$1,650 – 2,000 psf previously.

More importantly, the new prices are not far off from trough levels of nearby comparable projects such as Rivergate and The Pier within the secondary market, e.g.S$1,200 – 1,250 psf. From anecdotal evidences and talks with agents, interest in Rivergate has spiked up over the past month, with sellers unwilling to sway from asking prices of S$1,400 – 1,500 psf. This can also be corroborated by Lippo Group’s recent ability to sell a few units here for ~ S$1,500 psf upon receipt of the keys for their 80 units. Other factors include the recent stock market rally, expectations of an improving economy and the location’s potential (historically good rental demand from expats, river view and part of the new river taxi route from the upcoming Marina Bay Integrated Resort).

Our visit to a mid-market re-launched project – 51-unit Parc Centennial, also yielded similarly strong buying sentiments, as all of the 2-bedders were snapped up within two hours after they were re-launched at ~ 20% discount: S$1,180 vs. S$1,450 psf previously. In contrast, Far East Organisation has begun raising the asking prices for some of their existing projects, i.e. increase of S$100 – 200 psf for Vida (Cairnhill), as well as Jardin and Floridian (both Bukit Timah).

Our frequent showflat visits and Apr 09’s URA monthly data (142.1% MoM surge to 322 transacted units) are revealing a genuine spillover of interest from the mass-mid market to prime projects. Buyers’ risk appetites and profiles have also changed reasonably, as exhibited by an improved demand for units of higher quantum (S$1.0 – 1.5m) by specu-investors from the S$1.0m and below by HDB upgraders. Developers’ moves to shave off higher discounts off initial prices (helped by lowering construction costs and increased willingness to sacrifice higher margins) to capture sales have also helped prices to level off, from our view. Nonetheless, we note that the foreigners continue to form a minuscule proportion of the buying contingent.

In light of the above, we are now re-visiting our initial prognosis (physical prices to bottom in 1H10 and property stocks to bottom in 3Q/4Q08).


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Tuesday, May 26, 2009

Rising trend of rental guarantees

According to The Business Times, there has been a rising trend of developers offering rental guarantees to lure buyers in the current down-market. Far East Organization is offering rental guarantees for selected units in selected projects such as Orchard Scotts, Vida, River Place, Tanglin View and Icon. For Vida, which is located in Cairnhill Rise, Far East is offering a guaranteed rental yield of 5% a year. For units purchased under the the Belle Vue project under the deferred payment scheme, Wing Tai is provding a guaranteed income of 10% a year for two years on their downpayments. At the preview of The Mezzo project, Soilbuild Group Holdings offered a 6% annual rental guarantee for two years, apart from the interest absorption scheme.

We view the rental guarantees as a discounting mechanism without having to bring down the Average Selling Prices. In effect, it would translate to subsidizing the property prices by 5-10% depending on the rental guarantee conditions. The price differentials between developer sales and secondary market transactions especially in the upper mid and high end segment remains sizeable, relative to the same for the mass and mid-tier segments. The rentals subsidies and Interest Absorbtion schemes are effective discounting mechanisms to narrow the price differentials and entice home buyers.

That said, we expect the rental subsidies to aid in improving liquidity especially in the upper mid to high end segments and support base formation, thereby, improving the homebuying sentiments.


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Monday, May 25, 2009

CapitaLand sells 80% of Wharf Residence

CapitaLand’s The Wharf Residence continued to see strong buyer response over the weekend. Following the sale of 85% of 100 units launched on Friday, 15 May 2009, the company released new units and sold another 24 apartments over the weekend. This brings the total number of units sold to date at the development to 134 units as at 4pm on Sunday, 17 May 2009. This represents a sale of about 80% of the 173 apartments in the development. About 80 per cent of buyers for the 134 units sold to date are Singaporeans. The rest are from Indonesia, Malaysia, China, Japan, Canada and Vietnam.

The Wharf Residence is a 999-year leasehold condominium, located off the hip Mohamed Sultan Road, comprising four residential towers and 13 conservation shophouses. The apartments comprise two to four-bedroom units ranging from 1,012 to 2,196 square feet, as well as five penthouses (2,745 to 5,565 sq ft). The development also includes 13 conserved shophouses, dubbed the Vintage Collection houses, ranging from 4,478 to 4,930 sq ft in strata area.

The apartments are priced at between $1,300 and $1,600 per square foot (psf) inclusive of a package comprising stamp duty absorption and an interest absorption scheme. Buyers who do not opt for this package will enjoy an 8 per cent discount. Last year, CapitaLand priced apartments in the development at $1,500 to $1,900 psf, again inclusive of the stamp duty/interest absorption package. However, buyers were not given the choice of not opting for this package.


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