SG Residential Sector - OCBC Investment 2017-03-13: Carefully calibrated set of policy changes

SG Residential Sector - OCBC Investment 2017-03-13: Carefully calibrated set of policy changes Singapore Residential Sector Property Cooling Measures UOL GROUP LIMITED U14.SI WING TAI HLDGS LTD W05.SI WHEELOCK PROPERTIES (S) LTD M35.SI

SG Residential Sector - Carefully calibrated set of policy changes

  • Reversing some SSD and TDSR measures.
  • Imposing ACD for holding entities.
  • Home prices to decline 1-5% over 2017.

New housing policy changes effective 11 March 2017 

  • The Singaporean authorities announced earlier last Friday that they have relaxed some property cooling measures relating to the seller’s stamp duty (SSD) and the total debt servicing ratio framework (TDSR). 
  • On the other hand, a new stamp duty, the Additional Conveyance Duty (ACD), will be levied for the transactions of residential properties held in property holding entities (PHE) via share sales. 
  • These changes will take effect from 11 March 2017.

Relaxing some SSD and TSDR measures, imposing an Additional Conveyance Duty 

  • The SSD holding period is cut down from four years to three years, with the SSD rates lowered by 4% in each tier. With regards to the TDSR, the 60% threshold now will not apply to mortgage equity withdrawal loans with LTV ratios of 50% and below. 
  • Finally, the ACD will now subject significant shareholders of residential PHEs to equivalent stamp duties in place when they transfer equity interest in such entities, similar to what would happen if they were to buy or sell these properties directly.

Carefully calibrated changes will be marginally supportive 

  • On balance, we believe these set of changes will be marginally supportive of still-declining home prices but note that, by leaving the additional buyer’s stamp duties (ABSD) intact and introducing the ACD, the authorities have carefully calibrated these tweaks to avoid igniting excessive animal spirits. 
  • The ACD, in particular, will close one critical door for developers aiming to offload unsold units through share sales of PHEs so as not to incur penalties under the ABSD or Qualifying Certificate (QC) charges.

Timing of reversals not complete surprise 

  • In our view, the timing of these reversals was not a complete surprise. 
  • We have been highlighting to our clients over the last few months that the Singapore government has over the last three cycles a near unbroken record of actively reviewing property legislations against its goals of price stability, and historically began reversing curbs after homes prices had dipped between 8%-17% from the peak (see OCBC report: “Severe dip in home prices unlikely”, 9 Dec 2016). 
  • We are currently down 11% from the last peak over the last 13 quarters. With these latest sets of measures, we now adjust our forecast for physical prices to decline to 1% - 5% in 2017 (versus our previous forecast for a 3% - 7% decline). 
  • Our top picks are UOL Limited [BUY, FV: S$7.30], Wing Tai [BUY, FV: S$2.37] and Wheelock Properties (SG) [BUY, FV: S$2.27].

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-03-13
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