Real Estate - RHB Invest 2017-03-13: Unexpected Minor Easing Of Cooling Measures

Real Estate - RHB Invest 2017-03-13: Unexpected Minor Easing Of Cooling Measures Singapore Real Estate Property Cooling Measures CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI

Real Estate - Unexpected Minor Easing Of Cooling Measures

  • Last Friday, the Singapore Government announced that it tweaked the measures for the property sector, which caught the majority of market watchers by surprise. 
  • The tweaks, although minor and targeted in nature, mark a slight easing from its stringent stance. 
  • We believe the move is a preemptive one aimed at maintaining price stability ahead of expected interest rate hikes. While we do not expect a significant shift in buying sentiment due to the changes in policy, we anticipate sales volumes over the near term to pick up slightly. 
  • Overall, we expect property prices to still decline by 1-5% in 2017. Our Top Pick is City Developments.

Tweaks may boost near-term volumes. 

  • The tweaks to the property measures are minor and targeted in nature and should not result in a major shift in buying sentiment. The key measures that have been dampening the demand for properties are the additional buyers stamp duty (ABSD) and (total debt service ratio) TDSR framework, which restrict buyers’ borrowing capabilities. 
  • As these measures are left largely unchanged, the incremental demand growth is likely to be muted. However, near-term volumes are likely to see a surge as we expect developers and property agents to capitalise on the first signs of the relaxation of policies. Investment demand would also tick up slightly from the reduction of sellers stamp duty (SSD).

Alignment of stamp duties would increase discounts offered. 

  • The introduction of an additional conveying duty (ACD) would deter the bulk selling of units via the sale of shares. Thus, this would compel developers to offer more discounts to buyers instead. 
  • The move comes amid recent bulk sales of units by CapitaLand and City Developments via share sales to avoid paying stiff penalty charges.

Changes are largely unanticipated. 

  • The relaxation measures were largely unanticipated as this comes at a time when sales volumes have picked up, prices are showing signs of stabilisation and land prices remain relatively high. 
  • The Government has also been re-iterating its stance that property prices have not fallen significantly enough to warrant a relaxation in policy measures.

Why now? 

  • We believe the move is to pre-empt any sharp deterioration in the property market ahead of an anticipated increase in interest rates. The move also tries to strike a balance between managing Singapore’s status as an attractive global property investment destination while keeping prices at stable levels.
  • Additionally, the TDSR tweaks are mainly targeted at retirees who are looking to monetise their assets amid challenging economic conditions.

More relaxation of policies ahead? 

  • While we cannot fully discount the possibility of more tweaks, we fail to find any fundamental reasons supporting a major relaxation in cooling measures. Thus, we do not expect the Government to relax ABSD and TDSR policies in the near term (3-9 months), which is key to maintaining price stability. 
  • The Government is likely to assess the impact of recent policy moves in the physical market before announcing any further tweaks.

New assumptions. 

  • We now expect property prices to decline 1-5% this year, vs 3- 7% previously. 
  • Overall, we expect private home sales (excluding executive condominiums (ECs)) of 8,000-10,000 units in 2017 (from 7,500-10,000 units).

Maintain NEUTRAL. 

  • We are currently reviewing our TP assumptions in light of the recent policy changes. 
  • Our Top Pick is still City Developments, for its asset monetisation ability, nimble capital management and acquisition potential.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-03-13
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