UOB Kay Hian 2015-08-25: Property Sector - Expanding Public-Housing Electives.

Property

Property − Singapore Expanding Public-Housing

Electives Near-term negative impact on private-housing demand from the newly eligible pool looking to public-housing alternatives would be offset by long-term stabilisation effect as home ownership aspirations kick in.
We believe the market has over-discounted (40-60% discount to RNAVs) the negative prospects for the sector.
Maintain OVERWEIGHT with Wing Tai and CapitaLand as our top picks.

Following Prime Minister Lee Hsien Loong’s National Day rally speech, the Ministry of National Development (MND) and the Housing & Development Board (HDB) announced the following three new measures with effect from 24 August:
1. Helping extended families to live together or close to each other. The MND and HDB introduce a new Proximity Housing Grant (PHG) of S$20,000 for families and S$10,000 for singles to further help Singaporeans buy a resale flat, with or near their parents or married child, for mutual care and support. This is regardless of household income and previous housing subsidies. The recipients and their parents or married child must live with or in close proximity to each other for at least five years.
2. Raising income ceilings. The income ceiling for citizen households to buy new flats or resale flats from HDB with CPF housing grant will be raised from S$10,000 to S$12,000. For executive condominiums (ECs), the income ceiling will be raised from S$12,000 to S$14,000.
3. Helping lower- and middle-income families afford their first home. The income ceiling for the Special CPF Housing Grant (SHG) will be raised from $6,500 to $8,500 and the maximum SHG amount will be doubled from S$20,000 to S$40,000. This will enable more than two-thirds of Singaporean families to qualify for the SHG, compared to more than half currently.

Near-term negative impact on private-housing demand would be offset by long-term stabilisation effect. We believe the market has over-discounted (40-60% discount to RNAVs) the negative prospects for the sector.
Maintain OVERWEIGHT on the sector with Wing Tai and CapitaLand our top picks.

The public-housing eligibility pool will expand by about 120,000 households (~10% households) as the higher income ceilings of $12,000 for HDBs and S$14,000 for ECs extend the pool of eligible buyers by a decile to the 70th percentile for HDBs and the 80th percentile for ECs.
Negative impact on mass private housing demand in the near term as the newly eligible pool gravitates towards public-housing alternatives, given the affordability, added PHG and improved SHG incentives.
Stable public-housing prices will support private housing in the long term as home ownership aspirations kick in (mass private-housing prices are typically 15-20% higher than that of ECs). Besides, the demand from the newly eligible pool will first go to fill the gap created by the restrictions on permanent residents’ purchases before significantly affecting private housing demand (public housing saw a steeper 9.7% decline vs private housing’s 6.7%).
Developers with exposure to EC segment will benefit from the wider pool. These include City Developments, Sim Lian, Chip Eng Seng, Koh Brothers, Heeton and Keong Hong.

Vikrant Pandey | Derek Chang | http://research.uobkayhian.com/ UOB KH 2015-08-25

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