City Developments must brace for unsold inventory build-up

Its 4,349 units may not be sold.

According to Nomura, in addition to the projected completions and implied vacancy risk, the risk of unsold inventory build-up is also significant. Nomura's estimates suggest about 37,405 units of private condos and apartments could be launched for sale from now to end-2013F.

Here's more from Nomura:

This pipeline is made up of: 1) 2,032 unsold units in projects that were completed in the past two years, 2) 9,250 unsold units in uncompleted projects that have already been marketed, and 3) 26,123 units of potential new launches. Not surprisingly, nearly half of this pipeline is made up of projects in the OCR as a result of the record government land sales there since 2H10.

To put things in perspective, the potential pipeline of 37,405 units works out to nearly 19 months of supply based on the average monthly pre-sales (excluding ECs) of 2,019 units in the first 10 months of 2012.  

Taking into account projects that were less than 80% sold as of October 2012, the five developers that we cover have a combined near-term pipeline of just under 10,000 units that could be launched for sale. With tougher restrictions imposed on home purchases by the government and more competition from other new launches in 2013F, we see increased inventory risk for residential developers.

Among those that we cover, CIT appears to face the highest risk with about 4,349 units that could be marketed in the near term, while UOL appears to face the least inventory risk with just 585 units in two projects to market.