Property Market Update.

This report was compiled by DBS Vickers this morning:

March Down to A Quiet Quarter.

URA released yesterday the monthly price and sales data of new residential units sold in the month of March. Developers sold a total of 301 units in March, and this brings the total number of uncompleted units sold by developers in the first quarter of 2008 to 795 units.

This is the lowest number of new units sold in a quarter since 1Q2003 (when 322 units were sold), during the worst of the SARS crisis. The quarterly data is within our expectations and continues to reaffirm our view that the economic uncertainty relating to the sub-prime crisis and the health of the US economy took a toll on the confidence of property buyers.

March Less Than Before.

On a q-o-q basis, 1Q08 new sales declined 43% from the 1,397 units sold in 4Q07. On a y-o-y basis, the contrast was even starker – an 83% slide from the 4,565 new units that were sold by developers in 1Q07.

Prices were generally maintained across the broad market segments, supporting the earlier flash estimates of a 4.2% increase in overall prices in 1Q08. However, some developments began to see lower prices in their transactions, although this was again observed more in the projects by smaller developers.

High-End Prices Likely to Fall.

The 53 units at Grange Infinite that were sold to ARA Asset Management at a median S$psf of around S$2,600 in March 2008 is about 20% lower than the last transacted price (in January 2008) of around S$3,300 psf for that development.

This is consistent with our belief, highlighted in "Frosty February for Home Sales, 18 March 2008", that the high-end segment could come under some price pressure this year, with a possible drop of up to 20% in high-end prices.

A Challenging Quarter Ahead.

Going forward into the second quarter, we believe that the number of launches will continue to be thin in line with the caution and volatility in global financial markets, as the sub-prime woes continue to unravel and the prognosis of the US economy becomes clearer.

If overall global economic news continues to be negative, developers may start to get more realistic with their pricing; but if 2Q08 signs point towards a quick recovery in the US economy, then developers may decide to maintain price levels at the expense of slower sales.

Either way, 2Q08 should continue to be a challenging quarter for the property market.

Marching Forth.

Going forward into 2Q08, we believe that the number of launches will continue to be thin in line with the caution and volatility in global financial markets, as the sub-prime woes continue to unravel and the prognosis of the US economy becomes clearer. 2Q08 should continue to be a challenging quarter for the property market.

We continue to prefer companies that are more well-diversified geographically, with a multiple-revenue model that combines both development properties as well as investment properties. Among those with a focus on development projects, we would prefer diversified players that have a greater exposure to the mass-market segment.

Our top picks in the sector are Allgreen Properties (BUY, TP S$1.66), which offers attractive P/Book NAV valuations along with a stable recurrent income from its commercial properties and low-cost mass-market landbank.

We also continue to like F&N (BUY, TP S$5.85), which has become a relatively big mid and mass-market developer whilst offering exposure to the less cyclical F&B business.