SINGAPORE Sector Update

MITA No. 016/06/2008

12 June 2008 Property Sector

Where are we headed?

Neutral Developers holding back launches since 3Q07. Developers have

remained cautious with new launches as evident in the sharp decline in
the quarterly new launches from the high of 4,362 units in 2Q07 to 1,343
units in 1Q08 and many are reportedly holding back their launches due to
the weak market sentiments. While bigger developers with strong balance
sheet have the capacity to hold back their launches, smaller developers
with high gearing may face pressure to launch their projects in a depressed
market as a result of their high borrowings. And with cost of debt rising due
to the credit crunch and inflation, these small developers may face
increasing difficulties in securing credit lines. As such, we are cautious on
small developers that had acquired land banks at high prices in 2007 and
have yet to secure funding for their projects.

Take-up rate hits new low in 1Q08. While developers continue to cut
back on their launches in 1Q08, the lower number of units launched still
could not be absorbed by the market, as the take-up rate for new launches
has plunged sharply from 82.9% in 4Q07 to 54.4% in 1Q08, the lowest
since 2000. On a segmental basis, while take-up rates in the other two
regions had remained stable following sharp falls in the previous two
quarters, OCR saw the rate plunge from 91.8% in 4Q07 to 38.1% in 1Q08.
However, this may be due to the sharp 75.6% jump in new launches in
OCR in the quarter.

Interest for mass market properties should come back. We believe

this abnormality could be due to concerns over the oversupply of mass
market properties as the take-up rate in OCR has been fairly resilient over
the past two quarters, And given that only five projects with total of 1,139
units are expected to be launched in OCR between 2Q08 and 3Q08, this
should ease concerns of oversupply and drive the take-up rate higher over
the next few quarters.

Neutral on the sector. We reiterate our NEUTRAL view on the Singapore

residential property sector as our expectation of price weakness in the
high end and price stability in the mid to mass market properties remain
unchanged. Thus, we remain cautious over developers that have large land
bank exposure in the high end market, like Capitaland and Keppel Land.
We are currently reviewing our calls on CapitaLand, City Developments,
Foo Sze Ming
(65) 6531 9810 Keppel Land and UOL Group due to a change in analyst coverage.
e-mail: FooSzeMing@ocbc-research.com
Net Profit Previous Previous Current
(S$m) Price Target Rating Rating
FY05 FY06 FY07 S$

City Developments 200.4 351.7 725.0 18.80 BUY Under Review

CapitaLand 750.5 1018.0 2759.3 6.94 HOLD Under Review
Keppel Land 155.7 200.3 779.7 7.90 HOLD Under Review
UOL Group 100.1 339.4 758.9 5.48 BUY Under Review

Please refer to the important disclosures at the back of this document.

Sector Update

Developers holding back launches since 3Q07. Developers have

remained cautious with new launches as evident in the sharp decline in
the quarterly new launches from the high of 4,362 units in 2Q07 to 1,343
units in 1Q08 and many are reportedly holding back their launches due to
the weak market sentiments. While bigger developers with strong balance
sheet have the capacity to hold back their launches, smaller developers
with high gearing could face pressure to launch their projects in a depressed
market as a result of their high borrowings. And with cost of debt rising due
to the credit crunch and inflation, these small developers may face
increasing difficulties in securing credit lines. As such, we are cautious on
small developers that had acquired land banks at high prices in 2007 and
have yet to secure funding for their projects.

Past trends point towards another price correction. From Chart 1, we

observed that since 1995, there were three periods where the property
market experienced sharp declines in transaction volumes, prior to the
current period. It would be interesting to note that in two out of the three
periods during 1996 and 1999, property prices had experienced strong
run-ups and after the transaction volume has peaked, a price correction
would follow about one to five quarters later. The current situation in the
property market resembles that in 1996 and 1999 and if history were to
repeat itself, we could see property prices begin to correct over the next
few quarters.

Chart 1: Price correction follows after volume decline

6000 220.0

5000 200.0

Pro p erty Price In d ex

T ran sactio n Vo lu m e

4000 180.0

3000 160.0

2000 140.0

1000 120.0

0 100.0
1Q
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3Q
4Q
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20072008

Transaction v ol Property Price Index

Source: URA

Page 2 12 June 2008

Sector Update

Take-up rate hits new low since 2000. The take-up rate for new launches
plunged sharply from 82.9% in 4Q07 to 54.4% in 1Q08 (Chart 2), the lowest
since 2000. While developers continued to cut back on their launches in
1Q08, the lower number of units launched still could not be absorbed by
the market. A further breakdown of the take-up rate according to different
regions showed that the weakness in 1Q08 was in the Outside Central
Region (OCR), while take-up rates in the other 2 regions had remained
stable following sharp declines in the previous few quarters. .

Chart 2: Take-up rate at new low since 2000

5,000.0 120.0%
4,500.0
100.0%
4,000.0
3,500.0 80.0%
Launches

3,000.0

Take-up r5ate
2,500.0 60.0%
2,000.0
1,500.0 40.0%
1,000.0 20.0%
500.0
0.0 0.0%
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
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2Q
3Q
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3Q
4Q
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3Q
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1Q
2000 2001 2002 2003 2004 2005 2006 20072008

Launches Take-up rate

Source: URA, OIR estimates

Page 3 12 June 2008

Sector Update

Chart 3: Sharp decline in OCR take-up rate

160%
140%
120%

Take-up rate
100%
80%
60%
40%
20%
0%
4Q 1Q 2Q 3Q 4Q 1Q

2007 2008

CCR RCR OCR

Source: URA, OIR estimates

Interest for mass market properties should come back. One reason
for the plunge in OCR take-up rate from 91.8% in 4Q07 to 38.1% in 1Q08
could be due to concerns of oversupply in the mass market properties
segment, brought on by the sharp 75.6% jump in new launches in this
segment in the quarter. Otherwise, we note that the take-up rate in OCR
has been fairly resilient over the past two quarters. And given that only five
projects with total of 1,139 units are expected to be launched in OCR
between 2Q08 and 3Q08, this should ease concerns of oversupply and
drive the take-up rate higher over the next few quarters.

Growth in rental rates could slow. The rental index has performed strongly
since the beginning of 2005, rising by 74.3% to date. This was on the back
of a declining vacancy rate that fell from 8.8% to 6.3% over the same
period and the key contributing factor to this decline was the flurry of enbloc
sale tenders that reduced the amount of available properties in the market.
However, the cooling down of the enbloc fever will see fewer properties
being taken out of the market, which together with an impending supply of
an estimated 59,540 units to be completed between 2008 and 2011, we
could see vacancy rate increasing over the next few years. And this would
lead to a more muted outlook for rental rates amidst a more uncertain
economic outlook.

Page 4 12 June 2008

Sector Update

Chart 4: Strong rental index backed by declining vacancy rate

10.00% 170
160
9.00%
150
8.00% 140

Vacancy Rate

Rental Index
130
7.00%
120
6.00% 110
100
5.00%
90
4.00% 80
1Q
2Q
3Q
4Q
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3Q
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1994199519961997199819992000200120022003200420052006

Vacancy Rate Rental Index

Source: URA

Property prices could go down with rental rates. Historically, the rental
index and property price index have exhibited a strong correlation and the
recent strong performance of the Property Price Index (PPI) was well backed
by the run-up in the rental index Strong rental rates will attract more buyers
to invest in properties for the yield and thus driving property prices higher.
However, the more muted outlook for rental rates could be another catalyst
to dampen property prices going forward.

Page 5 12 June 2008

Sector Update

Chart 5: Strong correlation between property price and rental rate

200

180

Property price index

160

140

120

100

80
1Q
2Q
3Q
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1Q
2Q
3Q
4Q
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2Q
3Q
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1994 1995 19961997 1998 1999 2000 2001 20022003 2004 2005 2006 2007
2008

Residential Property Index Rental Index

Source: URA

High-end property prices could fall further. High-end properties have

generally outperformed the rest of the market in 2007, where prices have
surged nearly 30.4% between 1Q07 and 1Q08. We attribute this strong
performance to strong foreign interests in Singapore properties, which saw
foreigners snatching up a record 2,262 units in 2007, and an increase in
speculative activities. However, anecdotal evidence suggests that interest
from foreign investors has started to wane in the wake of the global credit
crunch and speculative activities have also grounded to a halt with the
withdrawal of the Deferred Payment Scheme. We note that has been
reflected in the recent transactions of several up-market properties (refer to
Table 1). And to make matters worse, there is still a huge pipeline of projects
in CCR waiting to be launched this year and this could add another 2,617
units into the market, which is more than 10 times the number of units
launched in CCR in 1Q08. As such, we do not see any catalyst for near-
term price increase.

Page 6 12 June 2008

Sector Update

Chart 6: High-end market outperformed the rest

220
200

Property price index

180
160
140
120

100
80
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

2004 2005 2006 2007 2008

CCR RCR OCR

Source: URA
Footnote: CCR – Core Central Region, RCR – Rest of Central Region, OCR – Outside Central Region

Table 1: Recent transacted prices sharply lower from peak prices

Project Highest Date Most recent Date Fall
name transacted price transacted price in price
(S$/psf) (S$/psf)
St Regis 4,653.00 May-07 2,900.00 Apr-08 -37.70%
Residences @ Evelyn 2,064.00 Apr-07 1,530.00 Apr-08 -25.90%
Icon 2,458.00 Nov-07 1,399.00 Mar-08 -43.10%
Ardmore II 3,598.00 Aug-07 2,499.00 Mar-08 -30.50%
The Sail @ Marina Bay 3,300.00 Oct-07 1,949.00 Mar-08 -40.90%
Cairnhill Crest 2,801.00 Jul-07 2,031.00 Apr-08 -27.50%
Marina Bay Residences 3,600.00 Jun-07 2,450.00 Dec-07 -31.90%
Source: URA

Page 7 12 June 2008

Sector Update

Neutral on the sector. We reiterate our Neutral view on the Singapore

residential property sector as our expectation of price weakness in the
high-end segment and price stability in the mid to mass market properties
remain unchanged. Thus, we remain cautious over developers that have
large land bank exposure in the high end market, like Capitaland and Keppel
Land. We are currently reviewing our calls on CapitaLand, City
Developments, Keppel Land and UOL Group due to a change in analyst
coverage

Table 2: Future launches of developers

Location Units District
City Developments
The Quayside Isle Sentosa Cove 228 4
Shelford Suites Shelford Road 77 11
Thomson Road Jalan Datoh 336 12
Pasir Ris Parcel 1 Pasir Ris Drive 1 724 18
Balmoral Road Balmoral Road 85 10

Capitaland
Jalan Mutiara River Valley Road NA 10
Nassim Hill Tanglin Road NA 10
Tong Watt Road River Valley Road NA 9
Yio Chu Kang Road Yio Chu Kang Road NA 26
Cairnhill Road Orchard Road District NA 9

Keppel Land
The Tresor Duchess Road 62 10
Reflections at Keppel Bay Keppel Bay 1129 4
Crest @ Cairnhill Cairnhill Circle 15 9
Naga Court Bukit Timah Road 56 10
Marina Bay Suites Marina Bay 221 1
Keppel Bay Plot 3 Keppel Bay 307 4
Keppel Bay Plot 4 Keppel Bay 234 4
Keppel Bay Plot 6 Keppel Bay 94 4

UOL Group
Green Meadows Upper Thomson Road 400 20
Spottiswoode Park Spottiswoode Park Road 231 2
Simei St 4 Simei St 4 NA 18

Source: Company, OIR

Page 8 12 June 2008

Sector Update

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The analyst who wrote this report holds NIL shares in the above security.

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month investment horizon. OIR’s Buy = More than 10% upside from the current price; Hold = Trade within +/
-10% from the current price; Sell = More than 10% downside from the current price.

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Page 9 12 June 2008