Official estimates of 3Q09 prices of private and public housing were announced last week.

EVEN THOUGH the Urban Redevelopment Authority (URA) estimates that private home prices will surge 15.9% in 3Q09 (the sharpest q-o-q increase since 1981), analysts believe that recent government action will prick any bubble.

Recent austerity measures include:

(1) Abolishing interest absorption schemes and interest-only loans offered for uncompleted private property developments;
(2) HDB’s increase in its supply of Build-to-Order public housing
(3) Reinstatement of government land sales in early 2010; and
(4) Cessation of developer-assistance measures from Jan 2010.

Based on flash data, the recovery is broad-based, with prices in the prime Core Central Region increasing 16.2%, the fringe Rest of Central Region rising 19.1%, while suburban properties Outside Central Region rose 15.4%.

Prime property prices are still around 16% off their 2008 peak, fringe property prices are about 14% off 2008 peak, while suburban property prices are only around 3% off the 2008 peak.

The public housing market also saw an increase in prices, as the HDB Resale Price Index returned a 3.2% increase qoq, a modest rise and the best performance since 3Q08.  However, given the relative resilience of the public housing market, this actually works out to be a new peak in HDB resale prices.

Should investors hold on to their property stocks?  What do analysts think?

Credit Suisse report issued on 1 Oct 2009

Credit Suisse: mass market residential property prices will hold
(Analyst: Tricia Song)

The HDB resale price index was up 3.2% qoq in 3Q09, continuing its stable growth of 1.2% in 2Q09.

Though relatively muted compared to the URA property index, the HDB resale price index did not fall as much in the previous quarters.  (The URA property index fell 14.1% qoq during 1Q09, the worst historically.)

Singapore’s total population increased 3.1% year-on-year to 4.988 million as at June 2009, according to SingStat.

This was slower than the rate of population growth in the last two years (4.3-5.5%), but is close to the five-year average of 2004-08 (3.3%).

Ms Song believes steady population growth is the major reason for the resilience of the HDB and mass-market private home prices.

Prices for the mid to high end properties are still 13-16% off peak levels, and Credit Suisse believes foreign demand for luxury homes would recover further with the opening of the integrated resorts and the recovery in the real economy.

Ms Song’s call is to buy Allgreen and Wing Tai on dips.

Nomura report issued on 1 Oct 2009

Nomura: foresees lower commercial rental rates
(Analysts: Tony Darwell and Sai Min Chow)

Nomura’s view is that the current cycle for Singapore’s residential property market is “W-shaped”. That is, we are now at the center peak of the ‘W’.

Given the upcoming trough implied, the Nomura analysts recommend that investors reduce holdings on Singapore property stocks such as Capitaland, City Developments, Fraser & Neave, SC Global and Singapore Land.

”Stocks have simply run too far and too fast, even assuming a marked rebound in physical asset prices,” say the analysts.

Government action to stabilize property prices will prompt buyers to re-focus on the fundamentals (high supply/weak rents), and thereby temper private residential price expectations.

Pre-sale discounts will also put a damper on further surges in property transaction prices.

The analysts forecast that weaker demand will knock office rents as much as 57% off the peak to a 2010F trough.

Given a higher supply and lower demand, they project rental rates for retail properties to fall 17.0% and industrial properties to fall 31.5% within the current cycle.

DBS Vickers report issued on 1 Oct 2009

DBS Vickers: be selective in picking property stocks
(Analyst: Adrian Chua)

DBS Vickers’ Mr Chua advises focusing on:

(1) Value in the midcaps
BUY Allgreen (TP S$1.36) and Bukit Sembawang (TP S$5.94), he says.

(2) Diversification in the big-caps
BUY Capitaland (TP S$4.18), he says.

(3) Companies with smaller landbanks
Such stocks are as a defensive measure in case the sector de-rates in the near-term, says Mr Chua. Some of these include Wheelock (HOLD, TP S$1.85), UOL Group (BUY, TP S$3.93) and Wing Tai (HOLD, TP S$1.75).

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