SINGAPORE (July 23): RHB is downgrading its sector “overweight” on Singapore real estate to “neutral” on expectations of transaction volumes for 2018 to fall by 10% from the 10-15% rise previously, and for prices to stay flattish over 2H18-2019.

In a Monday report, analyst Vijay Natarajan says he expects developer margins to take a 0-15% hit from the latest round of property cooling measures, depending on the cost and timing of land purchases and based on RHB’s base case assumption of flattish-to-modest price increases over the next two years.

Going forward, he believes the latest cooling measures are also to prevent a build-up in the supply pipeline, with en-bloc purchases to hit a pause due to a growing disconnect between sellers’ and developers’ price expectations.

CapitaLand remains his top “buy” pick with a target price of $3.95, as the stock is expected to see minimal impact from policy measures. The analyst also maintains “buy” on APAC Realty with a 77-cent target price, as he expects its lower sale volumes to be partially offset by higher developer commissions.

See: Expected to emerge unscathed from latest curbs, CapitaLand is RHB's top large-cap 'buy'
Due to its large Singapore residential exposure, City Developments (CDL) has been downgraded to “neutral” from “buy” previously. The stock has been given a target price of $10.40.

See: City Developments cut to ‘neutral’ on expected slowdown in Singapore properties and Brexit woes

“For 2019, we expect property prices to see a modest growth of 0-2%. Key supporting factors are replacement demand and liquidity from en bloc and stable job market. Key threats to our assumptions include spike in interest rates and prolonged trade war tensions impacting Singapore economic growth,” says Natarajan.

As at 3.22pm, shares in CapitaLand, APAC Realty and CDL are trading at $3.22, 62 cents and $10.11, respectively.