SINGAPORE (Dec 16): CIMB expects the affordability of Singapore homes next year to be eroded on the back of higher mortgage rate as interest rates inch up further.

And this erosion, coupled with incoming new inventory, will continue to be a drag on rental and price outlook, says the research house.

“We expect private residential prices to continue declining by about 5% while volume sales remain about 8,000-9,000,” says lead analyst Lock Mun Yee in a Thursday report.

Property stocks have already reacted negatively to the long-awaited US Fed interest rate hike and are currently trading at 40% discount to RNAV.

However, Lock thinks much of the interest rate and oversupply concerns have been priced in.

“In the absence of short-term catalysts, the sector could trade range bound,” says the analyst.

CIMB is maintaining its sector “Overweight” rating, with UOL (target price S$7.96), City Developments (TP: S$10.40) and CapitaLand (TP: S$4.17) as its top picks.

In Nov, total primary home sales came in at 1,110 units, or 860 units excluding executive condominiums (ECs).

Although lower compared to Oct, the sales performance was above the corresponding 2015 level by 17.5%/13.3%.

The best-selling projects were Parc Riviera (128 units, ASP S$1,189psf) and Queen’s Peak (271 units, ASP S$1,628psf).

As a result, sales in the Rest of Central Region (RCR) and Outside Central Region (OCR) constituted 96% of sales while sales in the Core Central Region (CCR) made up a small 4%.

For 11M16, primary home sales totalled 11,851 units, 21% higher than a year ago. Stripping out ECs, 7,996 units were transacted, 9% above last year’s level.

Lock says on an annualised basis, 2016 sales could be the highest since the implementation of the Total Debt Servicing Ratio (TDSR) framework in 2013 when the low interest rate environment and high savings rate of Singapore households led to property purchases.

As at 11.22am, UOL is up 3 cents at S$6.18, while City Developments is down 3 cents at S$8.17 and CapitaLand is down 2 cents at S$3.02. —

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