http://www.businesstimes.com.sg/arch...sured-20130702

Published July 02, 2013

Property stocks dip, but reaction measured

Falls following latest govt measures milder compared with previous curbs

By Mindy Tan


EVEN as property stocks fell across the board yesterday, following Friday night's announcement of a new Total Debt Servicing Ratio (TDSR), the dips were measured compared to market reaction following previous cooling measures.

The FTSE ST Real Estate Index dipped 5.67 points to close at 734.24 yesterday, led by counters such as UOL Group which lost 18 cents (2.68 per cent) to end trading at $6.54 and CapitaLand which dipped 7 cents (2.27 per cent) to close at $3.01. City Developments Limited (CDL) - a proxy for Singapore's property market - lost 17 cents (1.59 per cent) to end trading at $10.53.

On the other hand, Wing Tai bucked the trend, gaining one cent (0.49 per cent) to end trading at $2.06.

"The negative tone of the market today was dominated by the latest property measures and also weak Chinese manufacturing data," said OCBC research analyst Eli Lee.

"Versus previous rounds of property curbs however, there were milder reactions from developer share prices in the ballpark of minus one to three per cent. The market's judgement is that the emphasis of these latest curbs is not so much to cool down property prices but to further instil financial prudence in the sector," he said.

Indeed, the measures were largely anticipated given that the government has urged banks to adopt more stringent guidelines in their assessment of property loans, said UOB Kay-Hian analyst Vikrant Pandey, noting that previous rounds of cooling measures saw property counters drop by around 5 per cent.

Under the new debt servicing framework, a borrower's total debt obligations cannot exceed 60 per cent of his gross monthly income.

While deemed severe in some sectors, a housing collapse is unlikely given that leverage in the system is not stretched and affordability is still sound, said CIMB analyst Donald Chua.

Indeed, financial institutions maintain an average mortgage servicing ratio (MSR) of 28-30 per cent, well within 30-40 per cent limit. As such, while average TDSR is higher, it is "substantially lower" than the prescribed 60 per cent.

And, while there have been instances of loans being extended to "guarantors" in an attempt to circumvent LTV (loan to value) limits, this trend is not prevalent.

Standard Chartered estimates that the new framework could affect 10-20 per cent of buyers, pushing them to buy a cheaper apartment or borrow less than 50 per cent of the value of their second property.

"While the impact on recent launches has been muted thus far, we expect investment demand to be the hardest hit going forward," said UOB Kay-Hian's Mr Pandey. "We expect residential volumes this year to drop 20-40 per cent year-on-year and prices could correct by 3-9 per cent as investment demand slows."

He added: "We prefer deep value and diversified property developers such as CapitaLand, Ho Bee, and OUE as our top buys."

Said OCBC's Mr Lee: "The latest TDSR measures are an overall net positive for sector stability particularly now with incremental visibility of a QE exit scenario and the domestic market likely on the cusp of a mortgage rate uptrend."