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S'pore home prices need to fall at least 10% for property market to pick up: Macquarie

December 8, 2014 2:08 PM SGT

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SINGAPORE (Dec 8): Property developers in Singapore will have to clear about 12,000 homes and let prices fall by 10% in 2015 as they are holding on to too many unsold units, according to Macquarie Capital Securities.

"Developers typically hold a certain level of inventory and tolerate a certain amount of unsold units, giving them the opportunity to capture the property up-cycle.

"However, current inventory, measured by the ratio of the total number of unsold and unlaunched units with sales licences as a percentage of near-term supply (total unsold and unlaunched units), is too high," Macquarie analysts Sam Chan and Soong Tuck Yin said in a research report.

A 10% decline will bring prices back to average levels seen in 2009 to 2012, they noted.

"Thereafter in 2016, we are calling for a modest 1% increase, which should alleviate margin pressure."

After a "meaningful" price correction, the government will likely start to ease certain cooling measures, such as the additional buyer stamp duty, while keeping the total debt servicing ratio, they said.

As for shares of developers, next year will be a good to revisit "quality names", they said, as the current discount of their stock price to their revalued net asset value is too wide - at 36.5%.

The sector's discount to RNAV should narrow to 31% in 2015, driven by a pickup in profit margins if developers cut prices by 10% to 15%, they said.

"Going forward into 2015, the market will start to look ahead into 2016 and we see the gap narrowing (further) towards 22%."

Macquarie's top property picks for next year are CapitaLand, Hongkong Land, Wing Tai Holdings, ARA Asset Management and Global Logistic Properties.

As for REITs, Macquarie prefers those in the retail space.

REITs in general are unlikely to repeat their strong 2014 share-price performance next year, when interest rates are expected to rise, according to the Australian bank.

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