31 Jul 2013 08:50 by Credit Suisse
Singapore-centric developers could suffer from the overhang from expectations on slowing volumes despite our expectations of prices to remain flattish. Hence, Credit Suisse prefers non-residential proxies (retail and logistics more defensive) with more overseas exposure, such as CapitaMall Asia, CapitaLand and Global Logistics Properties, where earnings are also underpinned by a recurring income stream from rental income and fund management fee. Top developer and REIT picks are CapitaMall Asia, Global Logistics Properties, CapitaMall Trust, Mappletree Commercial Trust, Mapletree Logistics Trust.
Private residential prices rose further (+1.0% QoQ), led by OCR (+3.8% QoQ). HDB’s resale price index growth slowed to 0.5% in 2Q13 (1Q: 1.3%). Meanwhile, office prices rose 1.5% QoQ, while rentals rebounded 0.2% QoQ. Retail price growth slowed to 1.7% QOQ while rents declined by 0.8% QoQ. Industrial prices moderated, down 0.6%, and rents slid 0.1% QoQ.
Investment demand will likely soften further post the introduction of the Total Debt Servicing Ratio framework effective 29 June. However, Credit Suisse believes prices are likely to be resilient in the near term, supported by the low system vacancy and healthy household balance sheet. Credit Suisse does not expect an oversupply, as they believe the government will try to balance between ensuring housing remains affordable and not crashing prices.
Occupancy rose 0.5 pp QoQ to 90.5% (+118,400 sq ft net demand versus net supply of -204,500 sq ft), although Credit Suisse expects 3Q13 data to be weaker due to large completions (Asia Square 2, Metropolis). Office rentals remained flattish but Credit Suisse expects potential downside risks with supply pressure. Retail rents, especially suburban, continued to show resilience, while industrial prices and rents moderated, led by warehouses. Business Parks vacancies continued to rise, +2.2 pp to 21.7%.