SINGAPORE (Jan 3): OCBC Investment Research is maintaining “neutral” on the local residential sector after Singapore home prices posted their first decline in six quarters, according to recent Urban Redevelopment Authority (URA) flash estimates.

The research house continues to project a private residential price growth range of -3% to +2% for 2019, while also maintaining its forecast for 10,000 to 12,000 private sales transactions.

In a Thursday report, lead analyst Andy Wong says he remains largely cautious on the near-term outlook of the sector, with cooling measures having “clearly manifested” in residential prices as of late.

Citing FTSE ST Real Estate Holding & Development Index (FSTREH) data, Wong says it is unsurprising that Singapore developers have recorded a -0.6% return on Jan 2 given the overall dip in the 4Q private residential flash estimate, coupled with the tepid performances of the major regional indices on the first trading day of 2019.

His preferred sector picks remain UOL Group and CapitaLand, both rated “buy” with the respective fair value estimates of $8.41 and $3.96.

“Notwithstanding the current cheap sector valuations, the headline negative price dip in 4Q18 and still-soft investor sentiment may continue to curtail the share price performance of the Singapore residential sector in the near-term, in our view,” says Wong.

“One silver lining would be the moderation in the Government Land Sales (GLS) programme for 1H19, which is expected to yield ~6,475 private residential units. This is the lowest level since 1H07 (5,475 units),” he adds.

As at 10.43am, shares in UOL and CapitaLand are trading at $6.03 and $3.07, respectively.