City Developments may waver in 2012 property launches

Three high-profile projects face roll-out bumps as demand cools next year.

OCBC believes City Developments will take pause before launching Choa Chu Kang EC, Nouvel and Lucky Tower redevelopment -- all scheduled to launch next year.

These local market properties will be a tougher sell given the slew of price falls and foreign buyer restrictions predicted for 2012.

Here's more from OCBC:

Residential headwinds to come. We forecast domestic residential prices to fall 15%-25% over FY12-13. Lower GDP growth, coupled with curtailed foreign demand due to recent measures, would reduce residential demand significantly. CDL has significant domestic exposure and we expect a challenging year ahead. However, with its current balance sheet (net gearing 0.21x, interest cover 22.1 times), we see ample capacity to wait out longer project holding periods.

Slower sales at the Palette expected. The recently launched 892-unit Palette has performed well since its launch last month, selling ~41% of units at an average ASP between S$850- S$900 psf. We believe CDL has executed well on this launch and has priced it to sell briskly in an environment of increasing uncertainty. Note that the project was priced only marginally above that of NV Residences, which could have contributed to the strong take-up rate at launch. Given residential headwinds in FY12, however, sales are likely to slow down.

Possible wait-and-see stance after cooling measures. The anticipated launches of the Choa Chu Kang EC, Nouvel and Lucky Tower redevelopment would likely still occur in 2012 but management could lean towards a wait-and-see attitude given the recent cooling measures. We also see a more cautious approach to land-banking in 1H12 as management weighs post-measures sentiments. This could be especially so given its recent top tender for the GLS site at Alexandra Rd beside Redhill MRT for S$396m. We had expected the site to accrete 3 S-cents to CDL's RNAV with an ASP of S$1,400 psf but now expect little accretion given a softer outlook for domestic residential prices.

Little catalysts ahead - maintain HOLD with S$8.33 fair value. We believe management would continue to execute optimally despite unfavorable conditions ahead. At this juncture, however, we see few positive catalysts for the share price. Maintain HOLD on CDL with a lower fair value estimate of S$8.33 versus S$10.10 previously, due to softer residential ASPs and a higher 35% discount to RNAV reflecting heightened downside risks.