Don’t rejoice yet: Why May’s property sales are not cause for joy

The one-off boom will not be repeated.

May’s much-lauded spike in property sales dominated the headlines yesterday, but it is not a real cause for celebration.

According to a report Maybank Kim Eng, May’s robust demand is not likely to be repeated as homebuyers remain highly selective and price-sensitive.

The report noted that upcoming launches in the pipeline are considerably pricier than last month’s projects, which suggests that sell-through rates may be uninspriring.

“Despite the much improved sales, we expect sector headwinds to remain as sales at new launches taper off after the initial fervour. Given higher price points of upcoming launches, May’s robust demand is unlikely to be repeated,” the report noted.

Here’s more from Maybank Kim Eng:
YTD sales of 4,010 units (excluding ECs) were just half of last corresponding period’s. We thus cut our full-year new home sales projection by ~30% to 9,000-10,000 units (from 13,000-14,000 units).

In view of this, we cut our full-year new home sales projection (excluding ECs) by ~30% to 9,000-10,000 units (from 13,000-14,000 units).

On the back of expectations for slightly extended dovish monetary policies, we also roll-over our ASP projections from a 10% decline in 2014 to a 10-15% decline from mid-2014 to end-2015.

The key catalysts for the expected price decline include:

i) More developers adopting a ‘priced-to-sell’ approach to reduce inventory risks;

ii) Prospective homebuyers holding back in anticipation of the surge in physical completions in 2015 and 2016; and 

iii) Continued weakness in the HDB resale market to negatively impact the wealth effect, reducing upgraders’ demand for mass market private homes.