Why analysts think it's as if cooling measures never happened

The 12 bids for Jurong West site are surprising.

According to Nomura, the government land sales (GLS) tender for the residential site (99-yr LH, GFA 673,837 sq ft, c.660 units) at Jurong West closed on 29 January and attracted a total of 12 bids that range from SGD362psfppr to SGD651psfppr (from MCL Land).

In November when the site was first put up for sale (i.e. before the January cooling measures were announced), the market was expecting the tender to attract five to 13 bids and the winning bid to be about SGD540-600psfppr.

Here's more from Nomura:

Coupled with the equally positive news flow from the recently launched Q Bay Residences (99-yr LH, 630 units; sold over 400 units to date) in Tampines, it is likely that residential developers’ valuations will continue to recover to levels seen just prior to the 12 January announcement of the cooling measures (i.e. an average discount of 16% to NAV, vs. the current 18.5%), at least in the near term.

That being said, we struggle to find fundamental reasons to justify the bullish sentiments (and valuation). As posited in our note on the latest population projection (“Slower demand, faster supply”, published on 29 January 2013), the projected demand appears to be just half as much as before while more supply is expected to be added in less than half the time it took previously, which underscores the significant supply and inventory risks in the housing market.

That residential developers are already trading at a premium to mid-cycle valuations (average discount of 18.5% to NAV, vs. the mid-cycle discount of 23%) suggests the risk is decidedly to the downside at current valuations, we think.