Singapore Property Sector - UOB Kay Hian 2021-12-17: Coal For Christmas

Singapore Property Sector - UOB Kay Hian | SGinvestors.io CITY DEVELOPMENTS LIMITED (SGX:C09) PROPNEX LIMITED (SGX:OYY)

Singapore Property Sector - Coal For Christmas

  • The government introduced three new cooling measures aimed at dampening the property market. We were surprised at the extent of the measures given that they affect a very broad swathe of the market, as well as the timing since recent data has arguably not shown that prices are “out of control”.
  • Nevertheless, we maintain OVERWEIGHT on the property sector heading into 2022 as we believe that the market will adjust to the new normal, backed up by firm economic fundamentals.

Not the Christmas present that the Singapore property market expected.

  • On 16 Dec 21, the Singapore government announced a number of property cooling measures targeted at both public and private markets, and will impact aspiring buyers of HDB flats all the way to ultra-high net worth individuals.
  • Ostensibly, the measures are intended to “dampen the broad-based demand” seen in the property market in the past 12-24 months; however, the timing and the extent of the measures were surprising to us. These new measures include:
    1. higher Additional Buyers’ Stamp Duty (ABSD) rates,
    2. tightened total debt servicing ratio (TDSR), and
    3. reduced loan-to-value (LTV) for HDB granted loans.

Discouraging property as an investment class.

  • As can be seen in the table in the report attached below, the materially higher ABSD for second, third and subsequent properties for citizens and permanent residents (PRs), and higher ABSD for all foreigners, indicates that the government is trying to discourage property as an investment class for the foreseeable future.
  • We nevertheless note that the inventory of private residential property has declined 54% in the past two years and should this trajectory remain, prices are likely to remain firm.

Reduction in LTV for HDB grants was a surprise.

  • While we had expected some tightening of the TDSR (a reduction from 60% to 55% in this instance), we were surprised that there was also a reduction in the LTV for HDB grants from 90% to 85%. The latter reduces the amount that potential homebuyers can borrow from the HDB and thus results in such buyers needing to increase the amount of cash or CPF contribution.
  • We had not anticipated this penalty being imposed on HDB buyers, with widespread media coverage about selected HDB apartments being sold for in excess of S$1m perhaps triggering this precautionary move to impose a level of prudency into the HDB market.

Waving goodbye to en bloc.

  • While the market had been expecting the en bloc trend to continue into 2022, the latest cooling measures may have put paid to some of these hopes. The increased ABSD from 25% to 35% increases the risk for developers assuming failure to sell all of their units in a development within a five-year time frame. As a result, smaller en bloc projects with fewer units for sale may be more attractive to developers, while the larger en bloc projects may face greater challenges attracting agency and developer interest.

Share prices should stabilise in the near term.

  • We retain our OVERWEIGHT rating on the Singapore property sector given our expectations for the economy to continue its upward growth trajectory from 2021 into 2022. We highlight that UOB Global Economics & Markets Research forecasts Singapore GDP to grow 3.5% y-o-y in 2022 after a solid post-COVID-19 rebound of 6.5% y-o-y GDP growth in 2021.
  • Despite the relatively high base in 2021, growth in 2022 should be underpinned by the export and manufacturing sectors, which will benefit from the expected recovery of Singapore’s key trading partners as they bolster their vaccination efforts into 2022.
  • In our view, valuations for Singapore’s property developers and agencies were not stretched heading into these new cooling measures and thus downside to current share prices should be limited. At the close of trading on 16 Dec 21, City Developments was trading at a 2022E P/E of 15.1x while PropNex was trading at an ex-cash 2022E P/E of 9.5x. CapitaLand Investment (SGX:9CI) was not affected by these measures.

City Developments (SGX:C09):

PropNex (SGX:OYY):

Sector Catalyst

  • Continued economic recovery from COVID-19 especially resumption of leisure and business travel.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-12-17
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