Singapore real estate stocks fall after news of new market cooling measures announced

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SINGAPORE – Shares of Singapore real estate companies fell on Thursday (December 16) after the government unexpectedly announced a series of new measures to cool the private residential and HDB resale markets.

City Developments plunged 4.1% in early morning trading. The meter then gained ground to close at 2.7%, or S $ 0.19 less, at S $ 6.88.

Other developers also managed to cut their losses in the afternoon trading. UOL ended at 0.8%, or S $ 0.06, down to S $ 7.04, after losing as much as 3% at the open of the market. Oxley Holdings fell as low as S $ 0.179 at the opening before recovering some losses to close 2.1% at S $ 0.183.

GuocoLand lost 0.7%, or S $ 0.01, to S $ 1.51, while Frasers Property lost 0.9%, or S $ 0.01, to close at S $ 1.14.

Real estate agency PropNex closed at 3.9%, or S $ 0.07, down to S $ 1.71 after falling 14% earlier in the trading day.

APAC Realty also finished in the red, down 10.5% or S $ 0.08 to S $ 0.685.

As part of the latest cooling measures announced late Wednesday evening, the rates of the additional stamp duty for buyers (ABSD) for those who buy additional properties will be increased.

As of Thursday, Singapore citizens and permanent residents purchasing their second or next home will face a 5 to 15 percentage point increase in ABSD. Foreigners and entities will also incur more ABSD when purchasing residential property.

The total debt service ratio (TDSR) threshold for borrowers will also be tightened from 60 percent to 55 percent. This will apply to real estate purchase loans for which the option to buy is granted on or after December 16, and mortgage applications with equity withdrawal made on or after December 16.

In addition, the loan-to-value (LTV) limits for HDB loans will be lowered from 90% to 85%. This will affect new flat requests for sales exercises launched after December 16 and full resale requests received by HDB on or after December 16.

Private residential and public housing resale markets have been vibrant, despite the economic impact of Covid-19, the government said.

“If left unchecked, prices could exceed economic fundamentals and increase the risk of a destabilizing correction later. Borrowers would also be vulnerable to a possible rise in interest rates in the years to come, ”added the joint statement from the Ministry of Finance, the Ministry of National Development and the central bank.

CGS-CIMB analyst Lock Mun Yee said the measures were aimed at “cooling investments” rather than owner-occupier demand, as well as dampening market sentiment and short-term volume demand. .

Echoing this, OrangeTee & Tie’s senior vice president of research and analytics, Christine Sun, expects a “gut reaction”, with sales volumes slowing for about six months.

Private house prices could stabilize and rise at a much slower pace next year, she added. Taking this into account, OrangeTee & Tie now expects private residential market prices to rise 0-3% next year, down from a previous forecast of 6-9%.

Commenting on specific policy adjustments, Ms. Lock noted that the rise in ABSD rates for entities, along with the surge in the supply of private and public housing, could have a more negative impact on the block market.

The impact of tightening the TDSR threshold and the LTV for HDB purchases may be limited. On the latter, the additional down payment that owners will have to pay can be financed in cash or in CPF, she added.

AREA TO RECOVER AFTER AN INITIAL KNEE REACTION

Ms. Carmen Lee, head of OCBC Investment Research, noted that the latest announcement had a direct impact on two types of real estate stocks – developers and real estate agencies.

So far, the initial impact on real estate developers has been more measured as real estate agencies have taken a bigger hit considering how their stock prices have registered significant gains this year.

“We believe that the commercial and transactional nature of agency operations is seen to be more directly affected by chill measures, as opposed to developers who are ‘protected’ to some extent by diversified asset portfolios,” a- she declared. added.

Ms Lock said the news should have a negative gut reaction to real estate stocks in general and impact sentiment in the short term.

But with developers already trading at a steep discount, in part due to expectations of potential chilling measures, the “removal of this surplus” and improving the inventory situation due to a larger supply of private and public housing could support stock price performance over the medium term, she said. in a note.

Likewise, RHB analyst Vijay Natarajan said he does not expect a persistent downtrend in real estate stock prices after the initial instinctive sell-off.

“We believe the market has been anticipating this for some time and taking it into account, although the measures are in our opinion slightly more severe than expected,” he told CNA.

Given favorable factors such as low inventory levels, strong household balance sheets and improving labor market conditions, the real estate market is expected to find a balance, provided that economic conditions do not deteriorate, a added Mr. Natarajan.

Ms Lee also said that it is likely that the latest cooling measures will not have come as a big shock to the Singapore market, given that investors and property buyers are already familiar with the additional duties and taxes.

“Unless buyers buy more than one property for investment purposes, they remain relatively unaffected,” she added.

“Overall, we believe that the latest measures are fundamentally aimed at ensuring that there is always enough affordable housing for citizens or PRs who are in serious need of first-time housing, and that they have enough housing. funds to buy it. “

Elsewhere in the stock market, Singapore banks have ignored the new cooling measures despite their exposure to the home loan market.

DBS shares climbed steadily throughout the day to end at 1.4%, or S $ 0.43, higher at S $ 32.33. UOB rose 1.3%, or $ 0.35 S, at S $ 27.03, while OCBC Bank gained 0.8%, or S $ 0.09, to close at S $ 11.38.

“Although home loans can occupy a large part of banking business, the current situation of demand exceeding supply may help cushion the impact on aggregate loan demand, potentially attracting some first-time buyers. longer term home, ”IG Market explained. strategist Yeap Jun Rong.

Coupled with improving economic conditions and the general move towards policy normalization, the potential for possible interest rate hikes also bodes well for lenders’ overall net interest margins, a. -he adds.

The broader Straits Times index ended up 0.5% at 3,128.80 at the end of Thursday.

ADAPTING PRICES TO ECONOMIC FUNDAMENTALS

The last time property cooling measures were introduced in Singapore was in July 2018. Then the government also raised ABSD rates and tightened LTV limits.

The latest round of measures is being implemented to reduce the risk of a “self-reinforcing cycle” of price increases, National Development Minister Desmond Lee said on Thursday.

The authorities are also committed to increasing the supply of public and private housing to meet demand.

The Housing and Development Board (HDB) said Thursday morning that it plans to launch up to 23,000 new Custom Apartments (BTOs) each year over the next two years, with the aim of increasing supply to achieve “strong” housing demand of Singaporeans.

It will also increase the supply of private housing through the Government Land Sales (GLS) program. ANC

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