Residential property market likely to bottom next year: Merrill Lynch

Singapore’s residential property market is likely to bottom only at some point of time in 2010, says a new report from Bank of America Merrill Lynch.

The US investment bank noted that although local residential prices have already fallen 21% from the peak in mid-2008, they are likely to fall at least another 30% this year and a further 10% early next year before they stabilise.

Indeed, Merrill Lynch’s local property analysts warn that based on the flash estimates for Jan-March 2009 quarter, residential property price declines this year could be more severe than they are expect.

Earlier this week, the Urban Redevelopment Authority (URA) released a flash estimate of the 1Q09 residential property price index. Prices fell by 13.8% q-o-q compared to a 6.1% q-o-q decline in the previous quarter of 4Q08.

The recent price declines were most pronounced in the prime areas and the mid-market segments. Less severe declines were noticed in the mass-market segment which did not escape unscathed, declining 7.5% q-o-q.

Overall property prices have now returned to early 2007 levels and have completely wiped out the spectacular gains between early-2007 and mid-2008 when the market last turned its course.

The Merrill Lynch report also noted that residential property volumes are a leading indicator of pricing.

“Historically, once volumes collapse, it takes another three to four quarters of correction before market pricing forms a base,” the report said. “If the higher transaction volumes (that) we saw in 1Q09 remain sustainable, this would imply that volumes bottomed in 4Q08 and prices will trough in 2010.”

The only one property stock that Merrill likes is CapitaLand with a price target of $2.45“ given its financial flexibility to weather the storm” post-equity raising.

Merrill has a “neutral” rating on City Development and an “underperform” (its equivalent of a “sell”) rating on Keppel Land.

Source : The Edge – 2 Apr 2009

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