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Kim Eng Research (09-10-2012)

Kim Eng Research (09-10-2012)

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Published by SG PropTalk

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Published by: SG PropTalk on Oct 09, 2012
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07/31/2013

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SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Sector Update
 
9 October 2012
Singapore
 
Co. Reg No: 198700034EMICA (P) : 099/03/2012
 
Singapore Property
Round 6… Knockout Time?
Sixth round of cooling measures.
We had previously suggested thatmore property cooling measures by the Singapore government cannotbe ruled out completely. True enough, the government has nowstepped in to tighten rules on mortgage lending, a month after BenBernanke introduced “QE Infinity”. We believe this could nudge massmarket property prices towards a 10% correction by end-2013, and wereaffirm CapitaMalls Asia and Wing Tai as our top BUYs.
MAS tightens residential mortgage tenure.
The Monetary Authorityof Singapore (MAS) has capped all new residential property loans at 35years wef 6 October 2012. For loans to individuals, if the tenureexceeds 30 years or if the loan period extends beyond the retirementage of 65, the loan-to-value (LTV) will be capped at 40% if the borroweralready has one or more outstanding residential mortgage, and 60% ifhe has none.
Marginal buyers likely to be weeded out.
Our sensitivity analysisshows that for a SGD1 million loan, the monthly mortgage paymentincreases by nearly 13% to SGD3,451 on a base case interest rate of1.5% p.a. when the loan tenure is reduced from 35 years to 30 years.We believe that marginal buyers will increasingly be forced out of themarket if they deem the increase in monthly payments excessive, or ifthey do not have enough cash on hand for the higher downpaymentsshould they insist on taking loans exceeding 30 years, or beyond theretirement age.
Tipping mass market segment closer to a correction.
Since themass market segment has more marginal buyers/investors, we expectthe latest measures to tip the segment closer to a 10% correction byend-2013. However, in the short term, we see mass market demandstill largely being supported by the tight labour market. On the otherhand, we expect the measures to have little or no impact on the high-end segment. This is because the wealthy buyers tend not to be toohighly-geared in the first place, and they can stomach the marginalincrease in monthly payments.
Stick with CMA and Wing Tai.
We view the latest round of coolingmeasures as necessary to remind both potential homebuyers andfinancial institutions of the importance of financial prudence in thecontinued low interest rate environment. Raising the LTV and reducingthe loan tenure are the next best alternatives to raising mortgagelending rates directly. We reiterate CMA (TP:SGD2.09) as our overalltop pick for its retail property exposure, and Wing Tai (TP:SGD2.10) ourpreferred mid-cap pick for its high-end residential exposure.
Wilson LIEWwilsonliew@maybank-ke.com.sg(65) 6432 1454
 
9 October 2012 Page 2 of 7
 
Singapore Property
 
Fig 1: Diagrammatic representation of the latest measures
 
Source: Monetary Authority of Singapore, Maybank KE 
 
NoYes
 
9 October 2012 Page 3 of 7
 
Singapore Property Fig 2: Sensitivity of monthly payments on a SGD1.25m property to interest ratesand loan tenure (before 6 October 2012)
Property value SGD1,250,000Loan amount SGD1,000,000 (80% LTV)Per annum interest rateLoan Tenure (years) 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%15
5,985 6,207 6,435 6,668 6,906 7,149
20
4,599 4,825 5,059 5,299 5,546 5,800
25
3,769 3,999 4,239 4,486 4,742 5,006
30
3,216
3,451
3,696 3,951 4,216 4,490
35
2,823 3,062 3,313 3,575 3,849 4,133
40
2,529 2,772 3,028 3,298 3,580 3,874
Source: Maybank KE 
 Fig 3: Sensitivity of monthly payments on a SGD1.25m property to interest ratesand loan tenure (after 6 October 2012)
Property value SGD1,250,000Loan amountSGD1,000,000 (80% LTV) up to 30 years;SGD750,000 (60% LTV) for loans 30-35 years, or above retirement agePer annum interest rateLoan Tenure(years) 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%15
5,985 6,207 6,435 6,668 6,906 7,149
20
4,599 4,825 5,059 5,299 5,546 5,800
25
3,769 3,999 4,239 4,486 4,742 5,006
30
3,216
3,451
3,696 3,951 4,216 4,490
35
2,117 2,296 2,484 2,681 2,886 3,100
40
N/A N/A N/A N/A N/A N/A
Source: Maybank KE 
 

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