Developers to suffer from less pricing power under URA's new rules

Demand for new land sites will also see lower volumes in 2013.

Here's more from CIMB:

URA has issued a new guideline that will cap the total number of units to  be built for non-landed private housing developments. This is based  on a formula (Figures 2 & 3) aimed at limiting the number of “shoe-box” units (less than 50sm) that can be built on a private non-landed housing development.

All new developments outside of the Central Area will be affected by this new rule. For more congested  areas such as Kovan, Joo Chiat/Jalan Eunos and Telok Kurau, a more stringent cap will be applied. This new measure will take effect from 4 Nov 2012. 

This was an expected move, in our view. URA has estimated that  “shoe-box” units account for 50-80% of the total units in new housing  developments, and this has become a worrying trend given the increasing speculative element in the suburban regions.

Headline psf prices could see some downside pressure for units launched after 4 Nov. Developers generally were able to price shoe-box units at a premium given the small ticket sizes. Demand for new land sites could also moderate as developers will be constrained to build larger units with less pricing power.

We believe this move could set the tone for lower volumes in 2013. We expect this measure to be fine-tuned if volumes remain unabated. Near-term, impact on developers’ bottom-lines should be muted given that the new rule will not be applied retrospectively.