Property Development & Inventory - CGS-CIMB Research 2018-07-06: New Measures Weigh On Property Sector

Property Development & Inventory - CGS-CIMB Research 2018-07-06: New Measures Weigh On Property Sector Property Cooling Measures Property Stocks Target Price Adjustments CAPITALAND LIMITED SGX:C31 CITY DEVELOPMENTS LIMITED SGX:C09 FRASERS PROPERTY LIMITED SGX:TQ5 GUOCOLAND LIMITED SGX:F17 HO BEE LAND LIMITED SGX:H13 PERENNIAL REAL ESTATE HLDGSLTD SGX:40S UNITED ENGINEERS LTD ORD SGX:U04 UOL GROUP LIMITED SGX:U14 WING TAI HLDGS LTD SGX:W05

Property Development & Inventory - New Measures Weigh On Property Sector

  • The government announced higher ABSD and lower LTV limits, in an effort to cool the private residential market.
  • This implies higher transaction costs and more upfront payment for buyers. Developers would see higher land cost due to the 5% non-remittable ABSD.
  • We expect residential market sentiment to remain cautious.
  • We downgrade sector from Overweight to Neutral, adjusting RNAVs by 0-9% and cutting TPs by 0-21%.
  • We prefer companies with more commercial property exposure, i.e. UOL and HoBee.



Increasing Additional Buyer's Stamp Duty (ABSD)…

  • The government has announced a slew of property policy measures. This includes raising ABSD for investment residential property purchases by individuals by 5% pts to 12-20% while entities acquiring residential properties will see an increase of 10% pts to 25%. In addition, there is a further new, non-remittable 5% ABSD for developers.
  • There is no change in existing ABSD of 0-5% on the purchase of first residential property by Singapore citizens and permanent residents.


…and tightening housing loan limits

  • On the housing loan front, limits to housing loans have been reduced by 5% pts to 35 - 75% for the first or more housing loans, or 15-55% if the loan tenure exceeds 30 years or if it extends past age 65. These limits will also apply to mortgage equity withdrawal loans as well. 
  • All these changes are effective from 6 Jul 2018.


What is the impact on buyers and developers?

  • These new measures will have an immediate impact on buyers and developers. Apart from raising transaction costs, higher ABSD and lower loan quantums would mean an individual buyer would now have to fork out an additional 10% of property value upfront whether from cash or CPF balances. This may deter some marginal buyers from buying or compel them to opt for lower cost options.
  • For developers, the additional 10% + 5% of ABSD payable would mean at least 5% higher land cost, even if it manages to sell 100% of the project within five years.


Sentiment to remain cautious

  • Although it may take a little time to filter down to the URA property price index, sentiment in the residential sector will definitely stay cautious post this move. In the previous ABSD hike in Jan 2013, it took two quarters for the URA property price index to start retracing while transactions volumes reacted more immediately.
  • Our current projection for private home prices to rise by 10% this year and volume transactions of 11,000-12,000 needs to be re-assessed, with downside bias.


Downgrade sector to NEUTRAL

  • We downgrade our sector call to Neutral from Overweight to reflect the moderated fundamentals in the residential sector, post the latest tightening policies.
  • With the rise in land prices recently, resulting in higher landbank cost, any prolonged and significant retracement in the private residential price momentum would impact development margins and could potentially raise the risk of provisioning.


Cutting our RNAVs and Target Prices

  • We lower the RNAVs of property companies under our coverage by 0-9% and cut Target Prices by 0-21% as we adopt a wider discount to RNAVs, to reflect the higher risk within the sector. Consequently, we lower Wing Tai and United Engineer from Add to HOLD, due to limited upside.
  • We prefer names with higher investment property exposure such as UOL (high commercial exposure, competitively priced residential landbank) and HoBee (high commercial aexposure in Singapore and the UK, recurrent income accounts for 80% of earnings).









LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-07-06
SGX Stock Analyst Report ADD Maintain ADD 3.55 Down 4.370
ADD Maintain ADD 10.89 Down 13.410
ADD Maintain ADD 2.02 Down 2.400
ADD Maintain ADD 2.26 Down 2.880
ADD Maintain ADD 2.90 Down 3.390
ADD Maintain ADD 0.99 Down 1.180
HOLD Downgrade ADD 2.940 Same 2.940
ADD Maintain ADD 8.45 Down 9.650
HOLD Downgrade ADD 1.96 Down 2.320



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