Developer stocks down 4% amidst home price hikes

New home sales were down 38% in the first five months of 2018.

Despite a 7% rebound in home prices YTD, developer stocks have shed 4%, Maybank Kim Eng said in a report.

Urban Redevelopment Authority (URA) data previously revealed that home sales by developers reached 1,121 units in May 2018. Maybank KE analyst Derrick Heng noted that his brought new home sales to 3,431 units in the first five months of 2018, down 38% from the same period last year.

However, Heng said the low developer sales for the first five months of 2018 could be attributed to a lack of new launches, not a sign of market weakness.

“We believe housing demand remains strong, as evidenced by healthy overall volumes, including secondary market transactions,” the analyst added. “We maintain our new-home sales forecast of 12,000 units for this year, expecting a stronger 2H2018 to provide re-rating catalysts.”

Heng also noted that with the demand-supply outlook still supportive of a housing recovery, the share-price divergence is an opportunity to raise sector exposure.

He forecasted that there could be as much as 5,300 units of annual net supply for 2018-2020 compared to the long-term average absorption of 11,400 units. “Furthermore, replacement demand from the 6,000+ households displaced by en bloc deals announced since 2017 will soak up a large part of this supply. Given this, we expect lower vacancy over the next few years,” he said.

Maybank KE expects the recent home-price rally to continue and see buying opportunities during the current share-price weakness. “Speculative buying is near its historical low whilst existing measures continues to ensure financial prudence amongst property buyers,” Heng concluded.