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Strong condo sales targeting HDB upgraders will likely sustain momentum: DBS

THERE may be a broader trend of HDB upgraders recycling their public housing flats into private homes given the robust sales volumes at recent private residential projects, particularly that of Penrose.

Such sales volumes continued to be driven by Singaporeans as the key buyers, DBS Group Research wrote in a note on Tuesday while dubbing the Singapore property market "a bed of roses".

Despite the coronavirus outbreak, private residential sales totalled about 7,600 units in the year to date, up 7 per cent compared with the year-ago period.

This implies that demand remained stable even as the pandemic brought about a challenging environment, wrote analysts Rachel Tan and Derek Tan.

The sales volume for 2020 could come in at 10,000 units or more to beat the 2019 sales volume if the strong momentum were to persist in the remaining months of this year, they added.

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DBS cited the 566-unit Penrose at Sims Drive as an example. The condominium, developed by Hong Leong Holdings and City Developments Limited, was more than 60 per cent sold at its first weekend launch which ended on Sunday.

Sales totalled 341 units at the launch - "a remarkable record for a year hit by Covid-19", the analysts said. It marks one of the most successful first weekend launches in the wake of Singapore's "circuit breaker".

Nearly 85 per cent of the buyers at Penrose were Singaporeans, and most of them were HDB upgraders across areas islandwide.

Possible reasons for the strong sales included pent-up demand, the low interest-rate environment and the fact that property prices have remained "sticky", DBS said, adding that these factors could have prompted demand from HDB upgraders.

"We believe that selected projects will continue to do well, especially those targeting the upgraders market."

Besides, the robust property buying by Singaporeans seems to suggest either that the unemployment risk among locals may be manageable or that Singaporeans are "still very cash rich", the analysts wrote.

Penrose's developers had also attributed the successful launch to the right timing and sensitive pricing.

The condominium's average selling price (ASP) was in line with other projects in the vicinity, DBS noted. Penrose's ASP ranged from S$1,500 per square foot (psf) to S$1,700 psf, similar to those at newer projects nearby and just less than 10 per cent higher than selling prices at Sims Urban Oasis, which was launched in 2015.

The analysts estimated that Penrose's margin could be between 25 per cent and 33 per cent, based on the selling prices.

That being said, some analysts are expecting a slight cooling effect on the Singapore property market, after the Urban Redevelopment Authority's (URA) clampdown on the re-issue of options to purchase (OTPs).

URA on Monday curbed private housing developers from re-issuing OTPs to the same buyers of the same unit with immediate effect, amid worries that "financial discipline" may be slackening despite the recession.

The Business Times (BT) had highlighted in June that OTPs could be one of the factors propping up private home sales figures.

Further, demand for shoebox apartments - small, private homes that are 506 square feet and below - shrank in the first eight months of this year compared with a year ago, as pain from unemployment and pay cuts for the usual buyers came up against weaker supply.

On Tuesday morning, DBS's research team noted that Singapore-listed real estate developers are still trading at about 0.6 time price to net asset value, which is close to their historical trough levels.

"Valuations remain too cheap to ignore, as investors wait to ride on the recovery mode," the analysts wrote.

DBS's top pick for the property sector is CapitaLand. The real estate giant's shares rose S$0.02 or 0.8 per cent to trade at S$2.70 as at the midday break on Tuesday.

Most of the other listed property developers were likewise trading higher. CDL gained S$0.06 or 0.8 per cent to S$7.77 while Bukit Sembawang Estates was up S$0.02 or 0.6 per cent to S$3.59.

GuocoLand advanced S$0.01 or 0.7 per cent to S$1.49, and OUE rose S$0.01 or 0.9 per cent to S$1.16.

Frasers Property fell S$0.02 or 1.7 per cent to SS$1.16 by the midday break.

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