We recently lowered our estimated office capital values and REIT target pricesfollowing the cut in our Singapore GDP growth forecasts to 2% in 2008 and -0.5% in2009 (previously 4.3% and 4.1% respectively). As a result, we lower our RNAVestimates and price objectives for developers to reflect our new assumptions (seeTable 2) and the latest 3Q08 figures. Our cautious stance on the sector is unchanged.

Although property stock prices have fallen by 41%-63% since Aug 08, we think itis still too early to bottom-fish at this stage. Firstly, valuation metrics are extremelyvolatile as the economic climate continues to deteriorate. Secondly, we see nocatalyst to sustain a re-rating in stock prices. We strongly believe that there mustbe some visibility in physical property markets before we even attempt to startbottom fishing.

Within the commercial market segment, we think the office sub-segment has thegreatest downside risk to capital values and rentals. We recently downgraded ourrental and capital values forecast on a weaker demand-supply outlook. Inanticipation of record high supply coming onstream and weakening demand, weexpect rents and capital values to stabilize in 2011 at S$5psf (from S$8psf) andS$800psf (from S$1400psf).

We would stay away from the Singapore properties space for now given the lackof visibility. Developers with the best ability to weather this storm are those with –(1) a cheap landbank, (2) a strong balance sheet, (3) and a stream of cashflow tosustain them through this challenging period. In this regard, our view on thecompanies we cover has not changed. We still think City Developments standsout as the most resilient from the pack and maintain our Neutral rating. We alsomaintain our Underperform ratings on CapitaLand and Keppel Land.