Ending the quarter on a high. Mar 09 saw 1,220 homes snapped up (-8.4% QoQ, +278.9% YoY), putting 1Q09’s sold units to an impressive 2,660, representing the highest quarterly sales quantum since 3Q07 (3,450 units sold). Take-up exceeded 100%, helped by respectable demand in newly-launched projects (i.e. Double Bay Residences, Mi Casa, The Arte, Kembangan Suites and The Mercury), as well as re-launched projects at discounts of 10 – 20% (i.e. Kovan Residences, Parc Sophia, The Lucent and Palmera Residence). Mass market projects continued to be the order of the day, as we estimate > 85% of total sold units in Mar 09 were priced below S$1,000 psf, and located in the Outside Central Region (OCR) and Rest of Central Region (RCR). Overall, our estimates revealed prices in the mass and mid market were unchanged at S$700 and S$800 psf respectively. As for prime properties, The Mercury accounted for ~ half of the 133 homes sold here, with prices staying flat at S$1,400 psf. We also surmise that several units in Alexis (10 units) and Caspian (20 units) were returned between Feb and Mar 09. We reckon buyers remain HDB upgraders, middle-class Singaporeans, young couples and en-bloc sellers who were priced out of the run-up in 2007, with foreigners still few and far between.

Questionable sustainability of volumes. While we do not rule out pent-up demand (Oct 08 – Jan 09: monthly average of only 138 units sold) as one of the factors driving sales, we would also attribute it to developers’ introduction of heftier price cuts, low absolute pricing strategy and the Interest Absorption Scheme. Nonetheless, we continue to doubt the sustainability of the buoyancy in sales volumes, on the back of a weakening economy, further job cuts and softening within the HDB resale market. While we are aware of the healthy take-ups in a handful of prime projects in Apr 09, we believe their small scale does not portray a tangible return of confidence in prime properties – one of our key re-rating catalysts. More importantly, it does not warrant us to re-calibrate our initial prognosis of a bottoming of the property cycle in 1H10.

Downgrade CapitaLand to NEUTRAL on valuations. We observe that Feb – Mar 09’s buoyant sales activity coincided with the recent rally in property stocks. Despite the monthly gain of 29.0%, Singapore-centric niche and established developers continue to trade at trough valuations of 48.8% to book values. We believe this shows that the recent spike was more due to property stocks being oversold previously, at the same time reflecting little change in the fundamentals of the still-weak current domestic property market. This is further evidenced by no tangible improvements in any of our three key indicators – economy, confidence and interest in prime properties. While our preference towards diversified and well-capitalised developers remains intact, their average valuations of 29.0% discount to NAV now appear rich upon the recent rally. While we find this premium to other developers justified, we do not find any compelling reasons to upgrade any of our covered developers. As such we are downgrading CapitaLand to NEUTRAL from BUY on valuations (S$3.00 TP: S$2.60), while maintaining our NEUTRAL calls on City Developments (S$6.27 TP: S$5.08) and KepLand (S$1.75 TP: S$1.80), as well as the wider property sector.