Property – Singapore - UOB Kay Hian 2018-07-06: Another Round Of Cooling Measures

Property – Singapore - UOB Kay Hian 2018-07-06: Another Round Of Cooling Measures WING TAI HLDGS LTD SGX:W05

Property – Singapore - Another Round Of Cooling Measures

  • Share prices of developers are likely to suffer a knee jerk reaction to the latest residential property cooling measures.
  • Based on previous cooling measures in 2011 and 2013, we see potential worst-case downside of 11-25% for our key stocks.
  • Our current OVERWEIGHT call on the sector is under review.


  • Here we go again. The government announced further residential property cooling measures by adjusting additional buyer stamp duty (ABSD) and loan-to-value (LTV) limits from 6 Jul 18.
  • More pain from ABSD; only first-time buyers are exempted from changes. First-time home buyers will not be affected by the latest ABSD changes, with ABSD to remain at 0% for Singapore citizens and 5% for Singapore permanent residents. Otherwise, ABSD will be raised by 5ppt for all other individuals and 10ppt for entities. The government also introduced an additional ABSD of 5% that is non-remittable for developers purchasing residential properties for housing development. Developers may apply for the remission of the 25% ABSD subject to conditions, including the completion and selling all units within five years for licensed developers.
  • LTV limits will be tightened by 5ppt for all housing loans granted by financial institutions. The changes in LTV limits will not apply to loans granted by HDB.
  • (See tabulated changes at Measures To Cool The "Euphoria" in Singapore Property Market | SGinvestors.io.)


Swift follow-up.

  • While some property cooling measures could not be ruled out previously, the market was surprised by the swift follow-up and demand-side measures as initial expectations were that there could be some supply side cooling measures instead. This is due to the slew of en-blocs and aggressive bidding for selective government land sales (GLS).
  • Following the revision, developers will be subjected to an upfront non-remittable 5% ABSD upon the purchase of residential property and an additional 25% (previously 15%) ABSD if developers do not meet selected conditions such as the completion and sales of all units within five years. This is expected to significantly impact new en-bloc attempts, particularly large estates given the onerous penalties.

What happened in the previous cooling measures?

  • Residential property sales volume is expected to fall as only first-time home buyers are exempted from the higher ABSD. We estimate current investment demand at 20-25% and this segment could slow down significantly. During the previous cooling measures in 2013, transaction volumes fell 25% y-o-y.
  • As for prices for residential properties during the previous cooling measures since 2009, the property price index (PPI) held up well in 2010-12 but eventually declined steadily in since 3Q2013-2Q2017 (11.6% decline from peak PPI in 3Q2013) as the full brunt of the property cooling measures reined in prices.
  • Notable were the measures introduced in 2013 which included a jump in ABSD in January and introduction of total debt service ratio (TDSR) in June. The TDSR resulted in a 33% hoh decline in transactions of private residential property six months after its introduction.

Widening discount to RNAVs.

  • Since 1995, developers have traded at an average discount of 15% to RNAV. The current discount for the developers to RNAV is 30%. Our analysis suggests that this discount widened to a peak of 35% in 2011 and 41% in 2013-14 due to the slowdown in residential property market after the measures.
  • A caveat is that this analysis assumes the main causation of the widening discount is due to the sector-specific measures.


Brace yourself.

  • We put our sector rating under review as the fallout from the latest cooling measures has yet to be seen and share prices are likely to have a knee-jerk reaction. Our earnings estimates and RNAVs have been maintained but we expect discounts to RNAVs to expand by at least 5-10%.
  • We highlight the potential downside in the share prices of developers under our coverage assuming their respective discount to RNAV expands to the peak discount during 2011-13.

Diversified developers with strong financials will be more resilient.

  • Share prices of developers are likely to suffer a knee-jerk reaction and all developers will be impacted. Once the dust settles, we think well diversified developers with strong balance sheets will be more resilient.
  • Within our key picks, we estimate CapitaLand has the lowest exposure with 7.6% of its RNAV from Singapore residential property, followed by Wing Tai at 26.5% and City Developments at 31.5%.

Andrew CHOW UOB Kay Hian | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2018-07-06
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