Monday, March 8, 2010

Nomura bearish on S’pore developers

It sees pressure on residential prices and low rents impacting sales

THE latest Nomura Singapore Residential Property Report held firm to its bearish stance on local developers, based on expectations of a continued fall in transaction volumes.

Nomura analysts Tony Darwell and Sai Min Chow foresee a downward reassessment of price growth expectations putting pressure on these transaction volumes.

‘Demand for Singapore residential assets appears to be underpinned by the perception of relative value, despite an unprecedented fall in yields,’ the analysts stated in the report.

According to them, a ‘marked compression in residential yields’ had resulted from the divergent forces of asset value growth and falling rents over the last year.

Since early 2009, mass rents and luxury rents have fallen by 6.7 per cent and 14.6 per cent, respectively.

‘With a significant recovery in rentals unlikely, asset prices appear at risk,’ they said.

Residential yields in the mass market are now at 3.53 per cent, compared with 4.14 per cent 12 months ago.

The luxury market also saw its residential yields fall by about 100 basis points over the last 12 months to 2.25 per cent, what the report called ‘an unprecedented historical low’.

Putting additional pressure on asset prices and transaction volumes is the second round of government intervention last month that sought to discourage short-term speculative activity and tighten the supply of credit to the housing market.

‘We believe the government wants to check both volumes and prices, which will likely weigh on the Singapore developers whose stock prices are some 0.75x correlated with transaction volumes,’ the report said.

‘We retain our cautious stance on Singapore-domiciled developers. We believe they are pricing in ‘continued exuberance’, equating to a 25 per cent+ rise in asset prices beyond our expectations over the next 12-24 months – which we see as too optimistic given underlying physical market fundamentals.’

Source: Business Times, 8 Mar 2010

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