Residential prices will erode till 2013: BAML

Expect a 12.5% decline in 2012 and a subsequent 8% fall in 2013 for Singapore housing.

Bank of America Merrill Lynch said a bulging inventory coupled with retreating demand will hammer down prices in the next couple of years.

"We maintain our view of a 2012 inflection point for residential pricing driven by excess supply, demand moderation and slowing economic growth. We forecast prices to fall 12.5% in 2012 & 8% in 2013 and would avoid exposure to developers with significant exposure to domestic residential - CIT & WINGT and would prefer developers with stable income from commercial exposure – UOL & OUE," said Bank of America Merrill Lynch in a new 2012 property outlook report.

For the broader property market, BAML is bearish on Chinese expansions but is bullish that retail spaces and S-REITS in general will weather the storm.

"Singapore developers have aggressively deployed capital into the China, seeking growth beyond their home market. While stocks enjoyed the benefit of the 06/07 China re-rating, they have subsequently been penalized, underperforming peers & showing declining profitability. We expect the China physical market will suffer from a cyclical downturn and would hinder the performance of KPLD & CAPL," said BAML.

"Retail is the most defensive asset class across our coverage. For exposure to resilient domestic malls, strong earnings growth and stable yield, we like FCT & CMT. In contrast, we would avoid retail developer CMA where higher costs from new mall openings is eroding profitability resulting in weak 2012 earnings growth," it added.

"Be selective within the REITs: S-REITs are better positioned to weather a crisis vs GFC given more conservative asset values, stronger balance sheets & lower refinancing risks. Despite attractive yields of 7.5%, we would stick to defensive names with healthy earnings growth," it said further.