SINGAPORE (Oct 18): Analysts say the new URA property development restrictions will bring about a cooling in land prices for upcoming government land sales (GLS), and possibly be the final nail in the coffin for the en-bloc market.
Longer term, the measures could reduce the number of smaller units coming to market and lower land prices as developers price in lower psf launches.
URA announced last night that the average size of new private flats outside the central area will have to be at least 85 sqm, which compares to the previous limit of 70 sqm. Nine areas, up from four, will be subjected to an even more stringent minimum average requirement of 100 sqm.
The new requirements, which come into effect from Jan 17, will help deter the development of projects with shoebox units from overloading existing public utilities infrastructure in a particular area.
Given the new average size will reduce the number of units in new projects by 18% for a minimum area of 85 sqm and 30% for a minimum area of 100 sqm for the nine specified areas, UOB KayHian analysts say this would limit developers ability to boost margins by launching smaller units with a higher psf pricing.
"Instead, developers will have to launch larger units with an expected lower psf pricing to maintain affordable prices for homebuyers," says UOB analysts.
DBS Group Research says the new measures caught it by surprise as most investors and market observers did not expect further measures on the residential property market after the tough cooling measures in July.
For stock investors, the new measures would raise investors' perception of risk premium on developers with significant landbank in Singapore.
This means focusing on developers with strong financials and less exposure to Singapore residential property.
"In view of the challenging near-term outlook for Singapore residential property, investors may consider more diversified developers with strong balance sheet," says DBS lead analyst Derek Tan.
"This could include Capitaland with 7.6% RNAV from Singapore residential and Ho Bee Land's with recurrent income of more than 90%," advises Tan.
Meanwhile, Jefferies says existing Singapore projects for stocks under coverage are unlikely to be hit.
City Developments says none of the projects in pipeline as of 2Q will be impacted as planning permissions have already been obtained.
The company is also in advanced stages to submit development application for the Sengkang Central mixed development project, which it won in August.
Wing Tai, on the other hand, has already launched all its Singapore projects.
Jefferies says the curbs are likely to lead investors to more focus on recurring revenue streams and geographic diversification.
Furthermore, given the curbs apply to OCR projects, investment demand may shift to central and city fringe projects, leading to aggressive bidding for land in these areas.
Jefferies is maintaining Wing Tai at “buy” on low gearing, inexpensive valuations and less aggressive land bids with $2.40 target and CDL at “hold” with $11 target price.
Shares in Capitaland are down 2 cents to $3.09 while shares in Ho Bee are down 3 cents at $2.50 and CDL shares are down 22 cents at $8.15.
Wing Tai shares are up 1 cent at $1.97.
