SG Residential Property - OCBC Investment 2016-09-30: A thirst for landsites (that are just right)

CAPITALAND LIMITED C31.SI GLOBAL LOGISTIC PROP LIMITED MC0.SI CITY DEVELOPMENTS LIMITED C09.SI

SG Residential Property - A thirst for landsites (that are just right)

Despite a muted residential outlook, domestic developers – now sitting on fairly lean unsold inventories versus the historical average1 – are keen to replenish their land-banks.
In particular, there is firm demand for mass-market sites on which projects with carefully calibrated prices can still sell briskly.
To illustrate, we saw keen competition for the latest land parcel at Fernvale Rd offered under the Government Land Sales (GLS) tender, which attracted 14 bidders and a top bid of S$287.1m (S$517.0 psf pr). The price of the winning tender by the JV formed by Sing Development and Wee Hur was somewhat above expectations and we note that the three highest bids were all within 1% range of each other.
The aggressive bidding points to the fact that developers continued to have significant dry powder at their disposal given their generally firm balance sheets and fluid access to capital with low interest rates.

The tug-of-war between having capital headroom sit idle and taking a new condominium project in an uncertain residential market is an uneasy one for developers, and all the more so for sites awarded under the GLS system since all units need to be completely sold within five years if the additional buyer stamp duty is to be avoided.
The 99-year leasehold Fernvale Road site, which is less than 100m from the Thanggam LRT station and can yield about 600 homes, is attractive because of
1. its meaningful size (S$620m estimated gross development value) which will move the needle for most developers and, more importantly,
2. its potential for strong sales given the absence of competing launches coming up in the area and the successful launch last year of nearby 1390-unit High Park Residences (now 98% sold).
Buyers in the market, however, continue to be sensitive to pricing and it is important for developers to exercise cost discipline to protect their margins.
We note that the winning consortium has a construction arm which will help in this regard.
Maintain NEUTRAL on the property sector; we continue to prefer diversified blue chips with healthy balance sheets and strong business models. Our top picks are CapitaLand [BUY; S$3.68], City Dev [BUY; S$9.89] and GLP [BUY; S$2.37].

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2016-09-30

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 3.68 Same 3.680

BUY Maintain BUY 2.37 Same 2.37

BUY Maintain BUY 9.89 Same 9.89