Singapore property, bank stocks tumble on new cooling measures; analysts slash target

Singapore developer stocks may fall on surprise property curbs

Fri, Jul 06, 2018


[SINGAPORE] Singapore property stocks are set for knee-jerk declines Friday after the government unexpectedly tightened property curbs to cool a market the central bank described as euphoric.

The announcement late Thursday of higher stamp duty rates and tougher loan-to-value limits for buyers ran counter to the market sentiment earlier in the day. Investors had pushed shares of property developers' higher, with the index tracking these stocks rising the most in two weeks despite a warning from the central bank chief Wednesday that there was "a euphoria" in the housing market.

"Singapore property stocks may be negatively impacted" Friday by the sudden move, said Joel Ng, an analyst at KGI Securities (Singapore) Pte. "It's definitely a signal by the government that they are serious about managing the property market."

Property developers that have been aggressive buyers of government land sales or collective sales of existing apartment buildings may be hit, Mr Ng said. These include City Developments Ltd., Oxley Holdings Ltd., SingHaiyi Group Ltd., UOL Group Ltd., he said. Keppel Land and Wing Tai Holdings Ltd. are also among developers that have added significantly to their Singapore residential landbank, according to KGI.

More Pressure

Shares of Hong Kong-listed Logan Property Holdings Co. also bear watching, as it has almost S$2.1 billion in gross development value in Singapore with two development sites, KGI said.

"This additional round of cooling measure is likely to dampen property buyers' interest in a market that is already facing plenty of supply in 2018-2019," said Margaret Yang, an analyst at CMC Markets Singapore Pte. "Property developers who invested heavily in recent ‘en-bloc' sales are now facing more pressure in timeline and cash flow."

An index tracking private residential prices jumped 3.4 per cent in the three months ended June 30, according to a flash estimate from the Urban Redevelopment Authority this week. That builds on a 3.9 per cent gain in the first quarter, which was the biggest since the second quarter of 2010.

Aggressive Bids

The rebound in home prices has prompted aggressive land bids from developers. The government in February raised taxes on home purchases exceeding S$1 million as collective apartment sales reached levels the central bank described as exuberant. The so-called en-bloc sales are where a group of owners band together to sell entire apartment buildings. Singapore home sales jumped to the highest in nine months in May as developers sold 1,121 units.

"All these en-bloc development means there will be supply coming on later on, so when you make aggressive land bids you need to be mindful of that," Ravi Menon, managing director of the Monetary Authority of Singapore, told reporters on Wednesday at the release of the bank's annual report. "Basically we're sounding cautions to everyone to be sober, to be balanced, to exercise good judgment."

Adjustments to ABSD Rates for Residential Property

For foreign purchases of residential property, the additional buyers stamp duty increases to 20 per cent from 15 per cent, while for Singapore citizens the rate increases apply only from their second purchase, the Monetary Authority of Singapore, Ministry of National Development, and Ministry of Finance said in a joint statement Thursday.

For entities buying any residential properties for development, the additional buyers stamp duty rises by 10 percentage points to 25 per cent, with a further five percentage points imposed for developers.

‘Heavy Handed'

"This round of cooling measures is heavy handed" for a residential property market that's barely into its first year of recovery, Nicholas Mak, executive director of ZACD Group, said in a note, saying it's like a move to "strangle the baby in the cradle." Private residential price growth and developers' sales will slow down, and prices may even start to stagnate by the end of this year, he said.

The added charges will eventually be factored in by developers, according to Stephen Innes, head of trading for Asia Pacific at Oanda Corp. Looking at what has happened in Hong Kong, these new duties may not deter buyers who are speculating longer term and those investors looking for yield, he said.

"Looking at the news, it's likely to take the market a little by surprise, particularly with the broad expectation for property prices to remain on the rise through to the end of the year," said Jingyi Pan, a strategist at IG Asia Pte in Singapore. "As with previous iterations, it does remain to see whether it retains longer term impact (in) the current environment."

BLOOMBERG

Singapore property, bank stocks tumble on new cooling measures; analysts slash target prices

Fri, Jul 06, 2018


THE fall in property and bank stocks continued on Friday afternoon, after the Government's surprise measures to cool the property market were announced on Thursday evening.

At 1.50pm, City Developments had shed 17.04 per cent, or S$1.91, to trade at S$9.30. It closed at S$9.46. UOL Group was down 12.65 per cent, or S$0.98 to S$6.77, before ending the day at S$6.70. Developer Oxley Holdings gave up 14.63 per cent, or six Singapore cents, to trade at 35 Singapore cents, with its turnover of 22.39 million shares making it one of the most heavily traded. Its share price ended at 34.5 Singapore cents. CapitaLand was trading at S$3.01, down 17 Singapore cents or 5.35 per cent. It finished later at S$2.99.

Meanwhile, real estate agency PropNex fell 18.84 per cent, or 13 Singapore cents to 56 Singapore cents and real estate brokerage APAC Realty retreated 21.15 per cent or 16.5 Singapore cents to 61.5 Singapore cents. Both stocks ended at at 52 Singapore cents and 58 Singapore cents respectively.

PropNex had just made its debut on the Singapore Exchange on Monday, with a per-share IPO price of 65 Singapore cents.

Banks and brokerages were quick to slash their target prices on property developers' stocks after the move by the government to hike stamp duty and tighten loan limits.

In a note ahead of the market open on Friday, OCBC Investment Research analyst Andy Wong downgraded his rating for the Singapore residential property sector from 'Overweight' to 'Neutral', saying: "Coupled with the current macro uncertainties, near-term sentiment would be highly likely to sour. We expect shares prices of local property developers to see an immediate negative knee-jerk reaction.

"While we previously argued that the positive outlook presented a buying opportunity in the midst of the sector correction, we no longer believe this to be the case. Referencing the previous package of cooling measures introduced in Jan 2013, we note that the FTSE ST Real Estate Holding and Development Index (FSTREH) declined by up to 28 per cent after approximately 37 months (to Feb 2016), with the next day following the announcement closing (down) 3 per cent."

RHB analyst Vijay Natarajan reckons that high-end projects will be affected more heavily by the new measures, which will hit transaction volumes and prices. He said: "We expect a knee-jerk reaction on property sector stocks, with share prices likely to see a 5-10 per cent correction. We are of the view that developers holding large unsold Singapore residential landbank will see a bigger impact."

Mr Natarajan went on to add that where property agencies are concerned, the impact from a transaction volume slowdown is likely to be partially mitigated by possible increases in developer commissions, owing to the need to sell units within the five-year deadline.

The new cooling measures, which authorities said are aimed at keeping price escalations in line with economic fundamentals, involved adjustments to the Additional Buyer's Stamp Duty (ABSD) rates and Loan-to-Value (LTV) limits on residential property purchases.

The ABSD rates for Singaporeans and permanent residents (PRs) buying their first residential property remain at 0 per cent and 5 per cent respectively, but those buying their second or subsequent home will face a 5 percentage point increase in ABSD.

Foreigners buying any property face a 20 per cent ABSD, up from the current 15 per cent.

Entities buying residential property will also be affected by the new rules. Instead of the current 15 per cent, they will now face a 25 per cent ABSD. In addition, developers buying residential properties for housing development will face an additional, non-remittable ABSD of 5 per cent to be paid upfront upon purchase.

From Friday, loan-to-value (LTV) limits will also be tightened by five percentage points for all housing loans granted by financial institutions. However, they do not apply to loans granted by HDB.

While first-time buyers remain unaffected by the ABSD rules, the new LTV limit at 75 per cent will affect this category of buyers as this means a greater initial cash outlay for their property purchase, said real estate agency CBRE.

"Year to date, 74.4 per cent of all new home sales (3,740 transactions) have been below S$1 million. With transaction quantum still relatively affordable, we do not expect buying demand to drop too drastically especially from genuine buyers," it said.

All three local banks were also down sharply on Friday afternoon, with DBS shedding 3.19 per cent or 83 Singapore cents to S$25.21, UOB falling 3.58 per cent to S$26.12 and OCBC falling 2.61 per cent to S$11.20.

Analysts warn the three local banks could be impacted by the new cooling measures in the short term, although the long-term view is seen as positive, owing to rising interest rates.

RHB analyst Leng Seng Choon wrote in a note: "Amongst the three banks, UOB has the highest exposure to housing loans, at 27.6 per cent of its total loans – hence, UOB’s share price may be impacted more negatively in the short term."

Nonetheless, RHB advised investors to buy into banks on weakness to ride on the trend of widening net interest margins, singling out UOB as a top pick on a one-year time frame.

In a report on Singapore bank stocks, OCBC Investment Research's Carmen Lee noted that while the latest measures will not hurt the current mortgage portfolio for the three banks, new loans growth could come off in line with the slowdown in property transactions in the coming quarters.

She added: "We are still fairly positive about the other revenue contributors for the banks, but we expect this headwind to be a dampener on short term share price performance. For longer term investors, short term price weakness could present a good opportunity to gradually buy into banking stocks."