Residential Property

Residential Property 

 

3Q15’s aggregate presales were lower than anticipated – mostly due to low condo sales - and this led us to cut full year forecasts by 5%. More launches in 4Q15 will boost presales. LH and QH – long seen as brothers – are beginning to compete head-to-head, heating up competition. LPN and PS are the best plays on property incentive measures.  

New supply focus on SDH and DH in 3Q15. AREA reports SDH supply tripled with a quadrupling in supply of duplex houses from last quarter, but this was not enough to offset the sharp 66% fall in condos. New launches fell 18% YoY and 32% QoQ to Bt77.6bn; 72% were low-rise and 38% condo. New launches in 9M15 are at Bt288.2bn, up just 3% YoY. With the majority low-rise, with a slower absorption rate than for condo, average take-up in 3Q15 was just 25% - a low not seen since 1Q12. Non-listed companies cut new launches by nearly half QoQ. 

Presales slip. Aggregate presales for the seven lead property developers (AP, LH, LPN, PS, QH, SIRI, and SPALI) contracted 21% YoY and 32% QoQ to Bt38.7bn in 3Q15, below our previous forecast of Bt45.0bn. Behind this was contraction of 37% YoY and 54% QoQ in condo presales, on fewer new launches; low-rise presales slipped only 8% YoY and 5% QoQ. This brought 9M15 presales to Bt133.7bn, +9% YoY. 

Highlights. QH enjoyed good presales at 

Casa City Bangna  (47% sold), The Trust Baan Po (24% sold) and Casa Ville Baan Bueng 2 (17% sold), implying solid demand for low-rise housing in the eastern region. 

SPALI sold 50% of The Loft Sathorn-Narathiwas. PS sold out Plum Condo Central Station. LH’s 3Q15 presales were flat QoQ, but October has been good: Nantawan Bangna

(Bt20-50mn/unit) brought in sales of Bt1bn soon after launch. In November, it will launch Laddawan Rama 2 (Bt40-100mn/unit) and we expect good response: there is no high-end supply there after QH’s 

Laddarom Elegance sold out some years ago. It is also introducing a newer, grander looking 3-story SDH.   

Stronger presales in 4Q15. We expect presales to rise in 4Q15, but still will be lower than 2Q15’s, which we expect to be this year’s highest. Key to this will be more condo launches by LPN, SIRI, SPALI and a number of low-rise launches by LH. With presales in 3Q15 lower than expected, we now believe presales will slip slightly HoH in 2H15. This implies slowed 2015 growth of 20% YoY vs our earlier 25%.   

Keener competition. LH and QH, as siblings, have never competed directly with each other. In the past, they would tap different segments if they were in the same area. However, this appears to have changed – they are competing in land acquisition and will launch products aimed at the same segment in Soi Bang Kaew in the Bangna area. LH has four projects covering all segments from low-end to super high-end, while QH 

has two projects for low-end and mid-end. LH’s Mantana (SDH priced at Bt8-20mn/unit) opening in November will compete with QH’s Laddarom (SDH priced at 

Bt12-20mn/unit) launching this week. LH’s Indy (TH price at Bt3mn/unit) will compete with Casa City (TH price at Bt2.6-3.0mn/unit) launched in August. With strong demand, we do not expect severe competition, but projects will take longer to sell out.  No property stimulus yet. The lack of action on the property incentives last week was disappointing - but there was no conclusion on the special business tax cut; the transfer and mortgage fee cuts were okay. We estimate 2-6% earnings upside from transfer and mortgage fee cuts and 12-18% for special business tax cut. Since the price level that will attract these is unclear, low-end developers LPN and PS are more sure.   

Sector picks: LPN and PS as prime beneficiaries of stimulus, good earnings upside risk (20-22%) and intact growth outlook for their core businesses. We are turning more positive about LH’s outlook.