Home sweet home? Not so as things turn sour saleswise

Majority of earnings were in line. About two-thirds of property developers reported 1H11 earnings, adjusted for revaluation and one-time gains, which were broadly in line with our expectations. The rest missed our estimates marginally, mostly due to slower than expected construction progress at projects and hence lower revenue recognition. We do not view this as a major concern as strong residential sales in the last 24 months meant that a good number of projects under construction were mostly pre-sold. At CapitaMalls Asia (CMA) - a retail property developer - 1H11 earnings came in below estimates due to front-loaded mall opening costs given its pipeline of ten malls opening over FY11-12. Do note that with the implementation of INT FRS 115 this year, developers will need to recognize profits on overseas projects only on full completion, resulting in lumpier back-loaded earnings that are less meaningful trackers of performance. The key drivers of share price value are sales performances and acquisitions that feed into RNAV estimates.

Sales tracked down in Singapore. Overall, we saw weaker YoY sales in Singapore mainly due to cooling measures imposed in Jan 11. Despite the private residential price index rising 4.2% in 1H11, the number of private units sold tracked down 4.4% YoY to 8039 units in 1H11. CapitaLand's (CAPL) domestic sales in 1H11 fell 42% YoY to 271 units. Keppel Land (KPLD) sold 160 homes in Singapore in 1H11, flattish from 140 last year. Similarly, City Developments (CDL) sold 809 homes in 1H11 versus 773 units in 1H10.

Expect sales volume to slow in 2H11. Despite a few major launches expected in 2H11, for instance CAPL's Bedok and Bishan projects, we see sales volume in Singapore slowing in 2H11 as local buyer sentiments cool given the recent macroeconomic uncertainties. Prices may track down marginally but are unlikely to collapse given the developers' strong balance sheets and continued liquidity in the market.