Singapore Property - DBS Research 2017-03-13: Sentiment lift on relaxation

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Singapore Property Sector Property Cooling Measures UOL GROUP LIMITED U14.SI FRASERS CENTREPOINT LIMITED TQ5.SI BUKIT SEMBAWANG ESTATES LTD B61.SI UNITED ENGINEERS LTD ORD U04.SI

Singapore Property - Sentiment lift on relaxation

• Property measures relaxed for the first time; kick starting a loosening trend.
• Positive sentiment could drive sales; positive for new launches.
• Developers to continue to re-rate.

Singapore government relaxes SSD and TDSR (for selected group), signalling a change in policy stance. 

• The Singapore government relaxes property measures for the first time after a series of cooling measures which started in 2009 to 2013, tweaking marginally the seller stamp duty (SSD) and the total debt servicing ratio (TDSR) for selected groups.
• Although the adjustments are marginal and the impact to the property market should be gradual, we see this as a signal of a turn in policy stance which could lead to further relaxation in the future. 
• Given uncertainty from the pace of Fed rate hikes and its impact on mortgage affordability, this move confirms expectations that the government is ready to act pre-emptively to stabilise the property market.

Positive sentiment could drive transaction volume higher; bodes well for new property launches. 

• Following the slight positive sentiment seen in the 22% y-o-y increase in FY16 residential transactions, we believe that the lower SSD payable and holding period could drive transactions higher, with buyers and investors expected to enter the market in anticipation that any further relaxation could start to lift prices.
• This bodes well for new property launches, including Park Place Residences by Lendlease (soft launch 11 March 2017), Seaside Residences by FCL, New Futura, Clement Canopy by UOL and Grandeur Park Residences (please refer to table below).
• Developers with existing unsold inventory could also benefit from expected higher transaction velocity.

However, tweaks to stamp duties could hurt bulk sales.

• We also note that the new rules that levy similar stamp duties on transfers of equity interests in an entity holding residential properties as though the transaction reflects actual buying/selling of properties directly. 
• As such equity transfers in companies now incur similar rates as if a property is transacted could hinder any further bulk sales as potential buyers will want lower prices given expectations of higher tax incurred.

Policy tweak a surprise, stocks re-rating to continue. 

• We have previously highlighted the possibility of a government policy tweak in 2017 but the timing of this relaxation in 1Q17 caught us and investors by surprise following cautious statements from the government to maintain property measures prior to this move. 
• Nevertheless, we believe that the re-rating in property stocks to continue in the immediate term.
• A potential risk in the horizon is more than expected aggressive Fed rate hike momentum which may marginally dampen the euphoric sentiment. However, when that happens, we believe that the government stand ready loosen further measures which will continue to support prices and spur transaction volumes.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-03-13

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 7.640 Same 7.640

BUY Maintain BUY 2.000 Same 2.000

NOT RATED Maintain NOT RATED 7.55 Same 7.55

NOT RATED Maintain NOT RATED 2.890 Same 2.890