Residential REITs face severe sales slowdown in 2H14

Developers are in for a 40% drop.

The sales drought is still not over for the country’s residential REITs. After developers posted incredibly lacklustre sales in June, a report by Barclays today revealed that private condo sales could drop by as much as 40% in 2014.

This comes as developer sales plunged 68% m/m (-73% y/y) in June, and is expected to remain weak through August. This brought sales so far for 1H14 to 4,503 units, down 54% from 9,841 units for 1H13.

According to Barclays, “We expect both volumes and prices to slide given: 1) the ongoing government curbs, 2) looming oversupply, and 3) rising interest/mortgage rates in 2H15E. We maintain our negative stance on the Singapore residential sector and estimate prices will fall 5% in 2014 and 5-15% in 2015 as interest rates rise, coinciding with the peak in supply. The Ministry of National Development (MND) also stated recently that it is too early to relax any measures, affirming our belief that unwinding measures would start only when prices fall 10-15%, perhaps by 2015.”

Here’s more from the report:

Expect residential developers’ fundamentals to remain weak. The outperformance of Singapore developer stocks over the Singapore benchmark Straits Times Index in April-May, driven by privatisation activity and inexpensive valuations, has petered out. YTD, developers have outperformed the STI by 1.5% while SREITs has risen 8% YTD, outperforming the STI by 4.2%.

In our report: Singapore Real Estate and REITs: Home prices continue to slide; still too early to relax cooling measures published 1 July, we noted that both private and public home prices continued to fall in 2Q14 for the third and fourth consecutive quarters, respectively, bringing cumulative declines to 3.2% and 5.1% from their respective peaks.

We believe this shows the severity of the slowdown since the TDSR (total debt servicing ratio) framework was imposed in June 2013. Based on the runrate, we estimate private new home sales could be headed for a full-year take-up of 9,000 units for 2014, which would be a decline of 40% from 14,948 units for 2013 and a drop of 59% from 22,197 units for 2012.

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