One is a reduced GLS programme.
Nomura shared with Singapore Business Review 4 possible propety surprises for 2013. It notes that while it started 2012 with a more constructive tone (vs the more cautious outlook in the market), Nomuras' analysts find themselves at exactly the opposite end heading into 2013 (ie, more cautious than the market).
Surprise 1: REITs underperform the market
REITs outperformed the market in 2012 – the FSTREI index rose 36.7%, vs the 19.7% gain in the FSSTI – and ended the year with an average yield spread of 3.9pp over the SG 10Y GB (vs the mid-cycle yield spread of 4pp). The market’s expectation is for the low risk-free rate and strong SGD to continue to support REITs’ valuations. What could surprise the market, in our view, is the potential underperformance of REITs in 2013
Based on the trading histories of REITs, the years that saw significant outperformance (over 10pp; 2004 and 2006) were typically followed by underperformance (2005, 2007).
Surprise 2: 2013 – a repeat of 2007 for property stocks
We believe another surprise for the market would be how similar 2013 could be to 2007. Similar to the beginning of 2007, the current sentiment towards the property stocks is relatively buoyant, following a near 50% increase in property share prices during theprevious year. Also similar is the stage of the property cycle – more or less three years after the previous trough.
A notable difference this time, however, is that the residential developers enter 2013 trading at an average discount of 19.8% to NAV, compared to a discount of just 3.6% to NAV when they entered 2007. That being said, we believe the wider discount could be explained by the weaker physical market fundamentals such as poorer affordability and more unsold inventory.
A recap of property stocks’ performance in 2007: the FSTRE index was up 8.4% for the year but underperformed the FSSTI’s 18.7% gain.
Surprise 3: Government measures that could (finally) have an impact
According to the latest 4Q12 flash estimates for the URA private home price index as well as the HDB resale price index, private home prices and HDB resale prices grew another 1.8% q-q and 2.5% q-q, respectively, in 4Q12, notwithstanding the cooling measures that were introduced in October.
While the market generally expects more policy changes to be introduced by the government, it appears the market does not think any new measure will be effective in curbing the rise in home prices. As such, we believe a potential surprise in 2013 could be measures that could finally be effective in arresting the rise in home prices. After six rounds of cooling measures introduced since September 2009 (excluding other policy
changes that would have an indirect impact on private housing such as higher qualifying household income ceiling for BTO and EC purchases), it could well be just a case of introducing “the straw that breaks the camel’s back”, in our view.
Surprise 4: A reduced GLS programme
The government has been supplying the market with sites that yield about 28,000 private housing units (including EC; confirmed and reserve lists) each year since 2010 and, judging from the 1H2013 programme announced in December, the market does not expect the government to slow down the pace of supply any time soon.
Therefore, a potential surprise for the property market in 2013 could be a reduction in the number of sites pushed out by the government (either in the 2H2013 or 1H2014 GLS programme). This is conceivable especially if the government were to be successful in finally dampening the housing market.
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