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Singapore property stocks can shine in 2015 if developers cut prices: Nomura

November 25, 2014 12:17 PM SGT

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SINGAPORE (Nov 25): Singapore property stocks will do well next year if developers cut selling prices to clear their inventory, says Nomura.

Even if current unsold homes are put up for sale at prices 30% lower than their existing values, share prices of developers should still be higher than where they are now, Nomura analyst Sai Min Chow said in a sector report today.

"If developers were to adopt a more pragmatic approach of lowering price expectations to move inventory, then we think they could outperform in 2015."

Amid a slew of property cooling measures imposed by the government over the years, private home sales fell 52% y-o-y in the primary market and 34% in the secondary market in the first nine months of 2014.

Private home prices declined by a much smaller margin of 3% over the same period though.

While most developers are still in a wait-and-see mode, they are likely to be change their mind next year for three reasons, according to Nomura.

One, about 80% of the estimated 12,100 uncompleted homes in the outside central region are subject to the additional buyer stamp duty (ABSD) rule.

Developers of residential sites bought via the government land sales programme from Dec 2011 have to build and sell all units in a project within five years to avoid paying ABSD.

"We therefore think there could be more urgency for developers with such inventory to cut prices in 2015 to stimulate sales," said Sai.

By Nomura's estimates, there are about 31,000 unsold private homes in Singapore, and half of them, 14,600 units, are subject to the ABSD rule.

Second, developers are mindful that a "more meaningful" correction in home prices is the only way to encourage the government to re-think its existing housing policy.

Three, developers have leeway to lower prices in most cases.

Excluding prime luxury projects - units with an average price point of more than $2 million - developers under Nomura's coverage can offer a total of 6,300 units in the primary market next year.

These projects are currently priced at an average of 2.8 times of their land costs.

"If developers were to lower prices in 2015, we believe sales-related news flow would be positive for projects with an average price point of $2 million a unit or lower and an average price-to-land cost of 1.5 times or above," said Sai.

City Developments and UOL have the most inventory for such projects - at 2,300 and 1,800 units respectively - according to Nomura, whose top property picks for 2015 are these two companies and UOL Group.

It has a price target of $11.50 for CityDev, $4.32 for CapitaLand and $8.22 for UOL.

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