Singapore Property Sector - Approaching steady state Physical properties have done well in 2007. However, we see rising systematic risks as a real issue going into 2008.
Possible US sub-prime spillover, rising land costs and possibilities of further cooling measures from the government are factors that will likely moderate upside surprises in 2008.
On the residential front, we see the mass market providing most upside at current low base driven by flow of displaced buyers from enbloc sales, attractive rental yields and recovery in the HBD resale market. We are less positive on the mid-high segments currently.
Overall, our price forecasts for private mid-high end and mass market housing are lowered from 15% and 25% to 8% and 15% respectively.
While office supply continues to be tight, we see demand and rental growth for prime office space moderating in 2008 given rising decentralization trend and resistance in recent commercial land bids.
That said, we maintain our 30% prime rental growth forecast for 2008 as significant prime office stock are unlikely to come through till 2009-10. We believe stock markets are forward looking and typically move ahead of physical properties by a year.
As such, we downgrade the sector to Underweight from Overweight in a maturing cycle. Going into 2008, we look for developers with specific niches and themes to outperform the sector as a whole.
In our big cap assessment, KepLand remains our top pick in the big cap space for its exposure in booming townships in the region and dominance in Sing offices.
However, we downgrade CapLand from Outperform to Neutral on removal of premiums to end-CY08 estimate.
We believe smaller cap developers are likely to trade at a discount to target valuations in 2008 in anticipation of moderating upside surprises in the current cycle. BukitSemb is our top property pick among the small caps for its low cost land bank and high profile launches coming up.
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