Where are we headed?

Developers holding back launches since 3Q07.
Developers have remained cautious with new launches as evident in the sharp decline in the quarterly new launches from the high of 4,362 units in 2Q07 to 1,343 units in 1Q08 and many are reportedly holding back their launches due to the weak market sentiments. While bigger developers with strong balance sheet have the capacity to hold back their launches, smaller developers with high gearing may face pressure to launch their projects in a depressed market as a result of their high borrowings. And with cost of debt rising due to the credit crunch and inflation, these small developers may face increasing difficulties in securing credit lines. As such, we are cautious on small developers that had acquired land banks at high prices in 2007 and have yet to secure funding for their projects.

Take-up rate hits new low in 1Q08.
While developers continue to cut back on their launches in 1Q08, the lower number of units launched still could not be absorbed by the market, as the take-up rate for new launches has plunged sharply from 82.9% in 4Q07 to 54.4% in 1Q08, the lowest since 2000. On a segmental basis, while take-up rates in the other two regions had remained stable following sharp falls in the previous two quarters, OCR saw the rate plunge from 91.8% in 4Q07 to 38.1% in 1Q08. However, this may be due to the sharp 75.6% jump in new launches in OCR in the quarter.

Interest for mass market properties should come back.
We believe this abnormality could be due to concerns over the oversupply of mass
market properties as the take-up rate in OCR has been fairly resilient over the past two quarters, And given that only five projects with total of 1,139 units are expected to be launched in OCR between 2Q08 and 3Q08, this should ease concerns of oversupply and drive the take-up rate higher over the next few quarters.

Neutral on the sector.
We reiterate our NEUTRAL view on the Singapore residential property sector as our expectation of price weakness in the high end and price stability in the mid to mass market properties remain unchanged. Thus, we remain cautious over developers that have large land bank exposure in the high end market, like Capitaland and Keppel Land.
We are currently reviewing our calls on CapitaLand, City Developments, Keppel Land and UOL Group due to a change in analyst coverage.