Developer sales feared to plunge 50% to 8,000 units this year

February's sales figures provide some proof.

According to Barclays, developer sales rose 28% m/m and 2% y/y in February 2014 despite a weak base of
comparison in 2013. If this run rate were to continue, Barclays estimates sales of only 8,000 units for the full year, half that of 2013.

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We note that the weak sales at Wheelock’s The Panorama and that the S$110mn writedown that Wheelock has already taken could mean further price cuts by developers. The luxury segment continues to see headwinds with developers having cut prices by as much as 18% since end-2013.

We prefer REITs to developers with CapitaMall Trust, CapitaCommercial Trust and Keppel REIT (all rated Overweight) remaining our top picks in the sector.

Developer monthly sales remain weak: Private home sales improved 28% m/m to 724 units in February 2014, bringing the year-to-date total of units sold to 1,289 units, based on data released Monday by URA. This run-rate implies sales of just 8,000 units for the full year, almost half of the 15,000 in 2013.

We note that: 1) the combined take-up rate at 41% for the two new launches in February, Rivertrees and Riverbank, has been weak despite the attractive pricing due to competition and abundant supply in the area; 2) five units were returned at The Panorama (only 8% sold to date) and Wheelock Properties has taken a writedown of S$110mn on this project, which may indicate a reduction in selling prices going forward; and 3) sales of luxury projects remain weak.