Property Sector: Risk of government intervention has risen even higher

The URA yesterday released the latest preliminary statistics on the
residential property market. In 2Q07, residential prices rose 7.9% QoQ.
This is the fastest rate of growth since 3Q 1999 and prices have risen past
the last peak in 2Q 2000. On an annualized basis, the current statistics
indicate a growth rate of 31.6%. All segments of the residential market
rose rapidly in the quarter. Prices for the Core Central Region appreciated
by 7.6% QoQ, with the Rest of Central Region registered a strong 7.9%
QoQ increase. Even the rest of the market (i.e. including HDB heartlands)
rose by an equally strong 6.5% QoQ (annualized 26%). These numbers
are broadly expected by the market as anecdotal evidences at show-flats
and secondary transactions (both private and HDB flats) have shown
willingness of buyers to pay benchmark prices. The issue now is whether
the rate of price inflation is sustainable. Based on wage inflation of about
4.5% in 2006, the rise in wages appears to be lagging well behind residential
price inflation. The government also appears to be worried and has taken
the step to warn buyers that it is monitoring the market closely, presumably
for speculations. Furthermore, it has recently also released much more
land than expected. Under such a situation, we see the risk of government
intervention as having risen and actions to pre-empt problems cannot be
ruled out. We maintain Neutral weighting on the sector