Investors still hungry for bite-sized units: CIMB

Single and twin bedders will continue to be popular investment purchases this year while larger units will languish at the take-up.

Based on showflat visits in Flora Drive/Pasir Ris, CIMB observed a healthy take-up of units ranging in the 400-800 sqft. as investors prepare for a possible surge in rental demand in Singapore's suburban areas.

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Mostly investment demand. We visited four showflats along the Flora Drive/Pasir Ris area which included Palm Isles and Ripple Bay (new launches), and nearby Hedges Park and Seastrand (launched in 2Q11). Not surprisingly, initial take-up for new launches was robust, with 25% of total units at Palm Isles sold and 50% of total units at Ripple Bay sold. Investors made up the bulk of demand. 1-2 bedders (400-800sf) were snapped up, while take-up for the bigger 3-4 bedders (>1,000sf) was noticeably less.

Lower psf prices. New launches such as Ripple Bay and Palm Isles are priced at 5-8% below nearby projects (Seastrand and Hedges Park respectively). While buyers typically enjoy early bird discounts, property agents also attribute the lower pricing to rising supply in the vicinity.

Our thoughts. Interest rates are expected to remain benign. While prices show some signs
of fatigue, ample liquidity should continue to stir primary volumes and keep policy risks elevated. Bite-sized units should remain popular as investors embrace the possibility of rental demand shifting towards suburban areas. Property agents continue to pitch an attractive gross yield of 5%-6.5% vs. 2-3% in central locations. With physical completions expected to hit 20k-34k units in 2014-15 (mostly suburban units), it remains to be seen if supply can be soaked up. Meanwhile, we believe high-end volumes could remain under pressure in the next 6-12 months.