Property Sector: NEUTRAL - 1H09 GLS - Good But Not Good Enough

Citing the expected weak global economic outlook in 2009, the Government has decided against adding new sites to the 1H09 Government Land Sales (GLS) Programme. We believe another factor could be attributable to the considerable quantum of remaining sites backlogged from 2H08, where only 2 sites were successfully tendered off, paling in comparison to the average of 15 sites in the previous three semi-annual periods. Further potential supply was trimmed, as a mere 40,000 sm of commercial space would be made available through non-GLS avenues, representing a 72% HoH plunge. Although the move could help to re-calibrate the supply-demand dynamics, we surmise that the crux of the measure is essentially an affirmation of the current sentiments. While we welcome the Government’s move to pare down the potential pipeline of properties and not crowd the market with unnecessary supply when sentiments are already dampened, we hold the view that at this moment, the property market is more in need of demand-side catalysts than supply-side measures. Some of these could come in the form of temporary exemptions of stamp duty and decreased property taxes, as well as a fine-tuned Deferred Payment Scheme (i.e. 30 – 50% of sale price upon purchase to be paid initially, instead of 10 – 20%). Further, we reckon that the market has already priced in this measure following the earlier announcement on 31 Oct 08. As such, we believe the impact on developers’ share prices would be minimal. With the global macroeconomic climate still running its course, the operating environment for property developers has inevitably become increasingly challenging. We believe this is just the inception of a downcycle for the property market. There remain no near-term boosters to galvanize the share-price performance for developers. Aside from more concerted and effective measures by governments worldwide to shore up the economy and assist corporates in tiding through the current rough climate, we look forward to January’s Budget statement for Singapore. For now, we keep our NEUTRAL rating on the property sector and stick to developers which are well-capitalized, have less exposure to the residential segment and equipped with sources of recurring income. We thus maintain our BUY call for CapitaLand at S$3.05.

source:DMG
The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned