Property Sector

Keeping land supply steady but high
• Housing supply to remain high in 1H13
• Robust land purchase to remain, but capped price upside translates to thin margins
• Maintain selective stance, prefer CMA, UOL

CapitaMalls Asia Limited : CMA is one of the largest listed shopping mall developer, owner, operator, asset manager and fund manager in Asia

UOL Group : UOL Group is a property investment and development company. It has a 81.57% stake in Pan Pacific Hotel Group Ltd

Keeping land availability at c14,000 units in 1H13.
The government continues to maintain a high supply in the 1H2013 land sale programme. It has released 13 confirmed and 19 reserve sites with 6,935 units under the confirmed list and another 7,100 residential units under the reserve list, including 3,100 EC units for sale in 1H13. This is similar to the 14,000 residential units released in 2H12. In addition, it will introduce 315,000sm of commercial space and 1,740 hotel rooms. Most of the sites are located in the outside Central Region or Rest of Central Region, indicating that the proportion of mass and mid market housing will continue to be high. About 67% of the new parcels will supply housing in locations such as
Tampines, Punggol, Jurong and Woodlands. Notable sites under the GLS include Kim Tian Rd and a landed development at Coronation Rd/Victoria Park Rd. A mixed residential/commercial site at Yishun Central 1 is also likely to draw good interest.

Listed developers’ interest to remain selective but strong. While we expect developers to be more selective in their choice of land parcels, with listed developers being successful in winning about 20-54% of the land tenders in the past 2 years and depleted landholdings, we expect participation to remain keen, particularly for interesting sites. As such, land prices are likely to be steady and development margins to remain thin. Meanwhile, availability of land would also extend the visibility of potential completed stock of housing in the medium term when developers asset turn. As such, we believe price appreciation potential remains capped.

Developers have outperformed YTD, maintain selective stock picking stance. Property stocks are trading at an average 23% discount to RNAV, which is just a shade below the 18% long term average discount for the sector. Our strategy in the developer space would be to remain selective and prefer those with a diversified property exposure or with the prospect of enjoying ROE expansion through the ability to utilize their effective business models. Our picks in the sector remains CMA and UOL.