Wednesday, April 20, 2011

The Catalyst: Strong pricing trends and land deals to drive NAV expansion (AmResearch)

Strong pricing trends and land deals to drive NAV expansion (AmResearch property sector update April 18,2011)

  • Replacement costs are on the rise due to escalating land cost as well as rising prices of building materials from timber, aluminium, cement to steel. The recent aggressive bids for land surrounding mature neighbourhoods would solidify the strong pricing trends as land traditionally accounts for between 25-30% of residential prices. And, cement makers including LaFarge had just lifted its average selling price by some 6% in March 2011. The steel companies including Ann Joo and Lion Group are also guiding for higher selling prices this year.

  • The expected re-acceleration in residential prices would also be preceded by a sustained expansion in transaction volume, which is already underway now. Our discussions with developers revealed that demand has rebounded strongly in the past month, as evident from the strong response to recent launches. Buyers appear to have adjusted to the 70% loan-to-value restriction on third property, paving the way for a meaningful inventory liquidation cycle to kick in.

  • Against this backdrop, we expect developers to aggressively step up presales – the primary valuation driver of property equities. There are several prolific presales in the coming months at select prime neighbourhoods that may establish new pricing benchmarks, with an associated uplift to the broader residential pricing trends. Desa ParkCity is set to launch 127 units of ‘terrace’ houses – The Mansions, priced from an unprecedented RM650psf (+8%) on built-up area. At KL Eco City, S P Setia will be launching some 750 condominium units priced from RM900psf

  • Sam Ling would be launching ‘The Mansions’ – comprising 2.5, 3 & 3-storey superlink houses – with prices ranging from RM2.5mil-RM4mil or at a whopping RM650psf on average! Built-ups start from 4,300sf, 6,100sf and 6,500sf for the 2.5, 3 & 3.5-storey units, respectively. This is a gated and guarded hilltop development, next to the most recent launch, Casaman.

  • Tactically, we also expect newsflow centering on the redevelopment of some 3,300 acres of prime land in Sungai Buloh to sustain buying interests on property equities. The said land has high immediate development potential. The accretion to NAVs should be significant for developers. Kwasa Land – the property arm of Employees Provident Fund – is the master developer, which will establish joint ventures with select developers for several parcels

  • We gather that Setia Alam’s latest offerings have been very well received. There are only about four units left for Gardenia – launched in February – a typical double-storey development, with prices starting at around RM600k/unit.

  • Meanwhile, Duta Villa, which was launched about a week ago, has seen a take-up rate of 60%. It comprises 3 & 3.5-storey superlink units with pricing starts at RM1.6mil or on average at RM360psf.

  • The same can be said of Sime Darby’s Denai Alam where the recent launch saw a 91% take-up for its 2-storey superlink units. These were sold at close to RM700k with built-ups averaging at 2,500sf.
==> If this trend continue, 3 Years later, a double storey at Alam Alam place will cost you RM 1 millions !!!!! No eye see.

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