With the recent success of mass to mid market projects YTD, sentiments have turned positive for the overall Singapore property market. Riding on the initial wave of revived interest, we believe developers will be looking to move up the market and start launching their mid to high end projects which have previously been held off. Of the potential upcoming new launches, we estimate more than half will be in the mid to high end (Core Central Region) segment. This compares to less than 10% of the projects which were launched YTD in the Core Central Region.

We have seen strong new sales since February, holding up above the 1200 units level. Given the continued success of recent launches, we expect new sales to remain strong. With a boost in sentiments driven by the primary market, we are seeing transaction volumes in the secondary market also trending upwards. We forecast volumes in 2Q09 to be stronger QoQ and to sustain above the mean of 4,200 units. In past cycles reversion above mean of transaction volumes is one of the key trends which precedes pricing growth.

We expect positive pricing growth in the near term supported by positive net absorption in 2010. However, we expect the market to decline or trend downwards post 2010 as “on hold” supply return to the system. Currently, we are expecting more than 12,000 and 14,000 units due for completion in 2011 and 2012 respectively. Given the aggressive new launches by developers hoping to catch the rebound in the market, we believe that the issue of excess supply will limit further pricing upside post 2010.

We are forecasting a sharp 20% recovery in the Singapore residential market from trough which we expect to occur in 3/4Q 2009 (PPI Index). This should support share price momentum for Singapore developers in the next 6-12 months as stocks, which are highly correlated to residential pricing, lead moves in the physical market. While property stocks have rallied 44% YTD (vs STI +36%), we believe the sector will continue to re-rate as visibility of pricing growth improves. Our top pick in the sector remains CapitaLand (CLLDF; S$3.85; B-1-8) as we believe it has the greatest potential to re-rate in an upturn. We also have a Buy on City Developments (CDEV/Y; S$9.59 / US$6.60; B-1-7/ B-1-7) for its Singapore residential exposure.