Real Estate Sector - RHB Invest 2022-10-03: More Measures Mainly Targeting The HDB Market


Real Estate Sector - More Measures Mainly Targeting The HDB Market

  • The latest measures mainly target the high-end Housing & Development Board’s (HDB) resale market while ensuring property purchase prudence by adjusting mortgage ratios. We deem these as a light touch and targeted, slowing down transaction volumes (particularly HDB resales) with marginal price impacts.
  • Listed real estate agencies (e.g. APAC Realty (SGX:CLN), PropNex (SGX:OYY)) will see larger impacts from transaction slowdowns.
  • Impact on property developers is low on limited unsold inventory and depressed valuations (50-60% below RNAV) that largely prices in the downside.

Summary of policy changes.

  • The Government’s announced property cooling measures, which took effect on 30 Sep, are aimed at ensuring prudent borrowing and moderating demand. See MAS-MND-HDB joint press release.
  • These measures are:
    1. Increase in medium-term interest rate floor by 50bps to compute total debt servicing ratio (TDSR) and mortgage servicing ratio or MSR;
    2. Lower by 5ppts to 80% the loan to value (LTV) for HDB housing loans and introduce an interest rate floor of 3% per annum to compute such loans;
    3. A new wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs. It will not apply to seniors and their spouses aged 55 and above. This is a temporary measure to moderate HDB demand and will be reviewed depending on market conditions.

Measures mostly targeting high-end HDB resale market.

  • The key focus area of measures, in our view, is to keep the HDB market (home to 78% of the population) affordable. Based on an Orange Tee & Tie report, 231 HDB flats have crossed the S$1m threshold in 8M22 with the total likely to well surpass last year’s record 259 units. The introduction of a 15-month wait-out period for private residential property owners and loan to value (LTV) lowering of HDB loans should cool this demand at the top end of the HDB market in our view.
  • HDB resale prices are up 5% in 1H22 after a 12.7% increase last year, but should slow down to more flattish levels in 2022. HDB resale transactions have fallen 16% in 8M22, and we expect it to fall by ~20% for the full year.

Private property impact expected to be relatively mild.

  • The higher interest rate assumption in TDSR computation should lower maximum affordability levels ~5% and will likely have a slightly negative impact on mass market segment volumes.
  • We think these measures should also cool down some of the frenzy and fear of missing out or FOMO sentiment seen in new launches, with marginal slowdowns seen on private property prices.

Rental market may feel the squeeze and continue to move up.

  • The cooling measures are likely to prompt more buyers to tilt in favour of the rental market, which has already set new highs due to a supply crunch, construction delays, and opening up of borders.
  • We expect overall rent to rise 10% in 2022 and increase another 2-5% in 2023.

We maintain our volume and pricing assumptions.

  • New home sales for the full year are likely to come in at the lower end of our expectations of 8,000-9,000 units. Overall resale transactions are expected to decline 15- 20% with a sharp slowdown in HDB resale transactions in 4Q.
  • Our pricing forecast remains unchanged: 4-6% in 2022 and -2% to +2% in 2023.
  • Maintain NEUTRAL on Singapore real estate sector; Top Pick: City Developments (SGX:C09).

Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2022-10-03
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