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U/G to OVERWEIGHT from Neutral; Top Picks: City Developments, APAC Realty. The residential market is making a comeback with a sharp pick-up in buying interest seen at new launches (4Q24), indicating a change in buyer sentiment on the back of easing mortgage costs, a healthy labour market/wage growth, and pent-up demand from the lack of new launches. We expect momentum to continue into 2025, supported by a slew of attractive launches and strong GDP growth. Real estate agencies will be direct beneficiaries while developer stocks should see the narrowing of steep trading discounts.
The key risk to our call remains another round of stringent cooling measure targeting the private property market, such as across-the-board increases in Additional Buyer's Stamp Duty (ABSD) and the lowering of loan-to-value (LTV) ratios. However, we do not rule out the possibility of targeted measures to tackle rising Housing & Development Board (HDB) resale market prices and a potential increase in sellers' stamp duty and holding period (from three years currently) to curb speculative purchases and overheating if prices continue to rise at a faster clip (ie >3% per quarter).
New home sales momentum to continue into 2025. We expect primary volumes of 9,000-10,000 units this year (up 30-50% YoY), driven by lower mortgage rates, resilient household balance sheets, and an increase in new launch supply of >13,000 units (double that of 2024). Demand, however, is expected to remain selective, price-sensitive, and skewed towards the mass market and mid-tier segments. This follows a marked turn in buying interest in 4Q24, which saw 3,500 new homes being sold (more than the entire 9M24). Developers sold a total of 6,560 units in 2024 (+2% YoY). The healthy interest in new launches is likely to spill over into the secondary market segment, as there remains a significant (30-50%) price differential, with a 10-15% YoY increase in private resale transaction volumes expected.
Residential prices to continue moderating 1-4% in 2025 as higher supply and choices in the market, coupled with price-sensitive demand and ABSD deadlines will likely limit developers' pricing power. This is especially noticeable in the high-end segment, where the developer of One Bernam recently dangled discounts of 15-27%, resulting in a near sell-out of remaining units. Based on Urban Redevelopment Authority (URA) flash estimates, the private residential index rose 3.9% in 2024 (2023: 6.8% and 2022: 8.6%).
Developers to maintain cautious bidding stance amid ramp-up in land supplyover the last three years via government land sales (GLS) programmes. For 1H25, GLS has been raised to 8,505 units (2H24: 8,140 units), comprising 5,030 units (2H24: 5,050) in the confirmed list. Notably, there will be three executive condominium (EC) sites in the confirmed list, yielding 980 units (75% higher than the previous half) to cater to rising EC demand. We expect developers to remain selective and measured in their bids as development margins remain thin (5-15%) amid increasing cost pressures. This, in our view, could lead to a more stable and sustained property market recovery in 2025.
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