The last wave, goodbye
We believe the property sector is heading towards an early cyclical
downturn on adverse external conditions. Smaller developers should be the
first to cut prices, especially given the upcoming excess supply from 2009F.
Downcycle starts a year early
In our initiation note, House, season 2, dated 20 June 2007, we predicted that the
property cycle still had another leg of growth, driven by the middle and low-end
residential segments and a booming hotel sector. However, the current adverse
market sentiment seems to have put an abrupt end to the property upcycle, which
we had anticipated would continue throughout this year with residential supply
remaining tight. We reduce our 2008 population growth forecast to 2% (from 3%), in
line with the 10-year average, as the migration trend could slow on weakening
economic growth. Foreign migration was the main driver of population growth for
Singapore on the back of good job opportunities. We thus forecast property prices
will decline in tandem. As shown in Chart 2, we expect residential occupancy to peak
in 2008 and fall steadily over 2008-2010 as net residential unit completions hit
10,000 in 2009 and 15,000 in 2010 vs the 10-year average of 7,500 units.

We believe the worst is yet to come and price cuts are imminent as the holding power
of property players is weakening and speculative demand is diminishing. We highlight
that the prices of uncompleted prime property declined by 13% in 1Q08 from the
peak in 3Q07, vs stagnating prices in the middle segment and a 10% increase for the
low-end segment.
Our analysis suggests the launch prices of prime residences could fall as much as
30% this year, driven by price cuts from small players. They accounted for 38% of en
bloc sales in 2006 and 33% in 2007, and could have a significant impact on ASPs.
According to Bloomberg, the average gearing of listed small-cap developers was
1.83x as at end-2007, vs 0.4x for well capitalised listed developers, suggesting weak
holding power. Non-resident individuals and companies (such as private funds)
accounted for 37% of new sales in prime residences, the highest in eight years,
suggesting a high level of speculation. Foreign appetite for Singapore prime

I N V E S T M E N T V I E W
The last wave, goodbye 3
We believe the property sector is heading towards an early cyclical downturn on
adverse external conditions. Smaller developers should be the first to cut prices,
especially given the upcoming excess supply from 2009F.
Downcycle starts a year early 3
F O R E C A S T S & A S S U M P T I O N S
Key assumptions 5
We reduce our ASP assumptions for the upcoming residential launches across all
segments in view of the pressure on small developers and potential disposal from
speculators.
ASP forecasts cut, capitalisation rates raised 5
I N D U S T R Y D Y N A M I C S
More price cuts 6
We project price cuts of up to 30% in the prime segment, as small developers
with a 41% share of en bloc inventory may reduce gearing levels. Potential
disposal by speculators should add to the pricing pressure.
More pricing pressure from small developers 6
So, are they in trouble? 7
Deeper cuts on the horizon for prime properties 8
Middle and low-end segment may not be spared 11
A P P E N D I X
Appendix 14
C O M P A N Y P R O F I L E S
Company profiles 19
Bukit Sembawang Estates 20
CapitaLand 25
City Developments 30
Keppel Land 35
UOL Group 40