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Kim Eng Report

Kim Eng Report

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Published by Courtney Richardson
Writeup on the 7th round of property cooling measures in Singapore.
Writeup on the 7th round of property cooling measures in Singapore.

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Published by: Courtney Richardson on Jan 15, 2013
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04/21/2015

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SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
Sector Update
 
14 January 2013
Singapore
 
Co. Reg No: 198700034EMICA (P) : 099/03/2012
 
Singapore Property
Not Quite in Seventh Heaven
Seventh round of cooling measures.
The Singapore governmentannounced a slew of measures last Friday in its seventh attempt atcooling the property market. While the possibility of new measures waslargely anticipated by the market, the timing (barely three months afterthe last round) was somewhat of a surprise. The scope of this round ofmeasures also makes it the most comprehensive and all the measurestook effect on 12 January.
Dousing the residential heat.
Following flash estimates indicating thatprivate residential property prices rose 2.8% in 2012 even as theeconomy only grew by 1.2%, the government has stepped in to furtherquell investment demand for residential property. The AdditionalBuyer’s Stamp Duty (ABSD) has been raised across the board, suchthat only Singaporeans buying their first homes will not incur any ABSD.In addition, the Loan-to-Value (LTV) limits will be tightened forindividuals who already have outstanding housing loans and for non-individuals. These measures are temporary, but will be in force for aslong as the government deems them necessary to cool the market.
Curtailing the HDB gravy train.
The government also announced thaPRs who own an HDB flat must sell that flat within six months ofpurchasing a private residential property in Singapore. The lattermeasure is something which we had suggested before, but thedifference is that the government is currently only targeting PR HDBowners. We think that the impact of this measure is quite limited fornow, as PRs only accounted for 17% of all private non-landed propertycaveats lodged in 2012, of which we can only estimate that less thanhalf actually own HDB flats.
Dotting the i’s and crossing the t’s.
New guidelines have also beenintroduced to the Executive Condo (EC) segment, mainly addressingthe public’s discontent with oversized units (now all units to be cappedat 160 sqm each). Developers will now only be allowed to launch theirEC units 15 months after being awarded the site or after the physicalcompletion of foundation works. The government is also introducing theSeller’s Stamp Duty (SSD) to the industrial property segment to curbspeculative activity. Industrial properties and land bought and soldwithin three years will attract SSDs starting from 15% if sold within thefirst year (stepped down at 5% for each subsequent passing year).
Unlikely to be the last word.
While the government’s latest salvo aimsto deal a heavy blow to the property market, it is unlikely to be its last inthis low interest rate environment. The higher ABSDs and lower LTVsare likely to lead to a significant drop in new home sales over the nexttwo to three months, with the higher cash outlays likely to hit the massmarket segment more significantly. We maintain our view that massmarket home prices are likely to correct by 10% in 2013.
Overweight
(unchanged)
 
Wilson LIEWwilsonliew@maybank-ke.com.sg(65) 6432 1454
 
14 January 2013 Page 2 of 9
 
Singapore Property Sector
 
Sticking with our stock picks.
We continue to prefer the diversifiedproperty players, namely CapitaLand, Keppel Land and CapitaMallsAsia. We also maintain our BUY ratings on Wing Tai and Ho Bee as webelieve the impact on the high-end segment will be less significant thanthe mass market segment and stock valuations remain attractive. Wereiterate our SELL recommendation on City Developments given itssizeable mass market landbank.
Fig 1: Valuation of property stocks
Stock Rec Shr px Mkt cap TP RNAV P/B (x) P/RNAV(SGD) (SGDm) (SGD) (SGD) 2012F
CapitaLand BUY 3.890 16,534.8 4.27 5.34 1.1 0.7Keppel Land BUY 4.280 6,609.4 4.74 5.92 1.1 0.7CapitaMalls Asia BUY 2.140 8,319.7 2.53 2.81 1.3 0.8Wing Tai BUY 2.020 1,582.5 2.50 3.57 0.7 0.6Ho Bee BUY 1.970 1,364.5 2.27 3.25 0.8 0.6Singapore Land Limited BUY 7.550 3,114.4 8.20 11.71 0.6 0.6City Developments Limited SELL 12.600 11,457.2 9.70 12.97 1.6 1.0
Simple ave 1.0 0.7
Source: Maybank KE 
 Fig 2: Changes to the Additional Buyer’s Stamp Duty
Citizenship ABSD rate on 1st purchase ABSD rate on 2nd purchaseABSD rate on 3rd and subsequentpurchase
Singapore CitizensExisting: NA Existing: NA Existing: 3%Revised: NA Revised: 7% Revised: 10%Permanent ResidentsExisting: NA Existing: 3% Existing: 3%Revised: 5% Revised: 10% Revised: 10%Foreigners and non-individuals(corporate entities)Existing: 10% Existing: 10% Existing: 10%Revised 15% Revised: 15% Revised: 15%
Source: Various ministries 
 Fig 3: Changes to LTV limits and cash requirements
1st Housing Loan 2nd Housing Loan From 3rd Housing LoanLTV Limit
Existing rules: Existing rules: Existing rules:80%; or 60% if the loantenure is >30 years orextends past age of 6560%; or 40% if the loantenure is >30 years orextends past age 6560%; or 40% if the loan tenure is >30years or extends past age 65Revised rules: Revised rules: Revised rules:No change 50%; or 30% if the loantenure is >30 years orextends past age 6540%; or 20% if the loan tenure is >30years or extends past age 65
 
Minimum Cash Down Payment
Existing rules:
 
Existing rules:
 
Existing rules:
 
5% (for LTV of 80%10% (for LTV of 60%)10% 10%Revised rules: Revised rules: Revised rules:No change 25% 25%
Non-individual borrowers
Existing LTV Limit:40%Revised LTV Limit:20%
Source: Various ministries 
 
 
14 January 2013 Page 3 of 9
 
Singapore Property Sector
 
Taking the Wind out of the Sails
Equalizing the ABSD differential.
In our report “
A Theory of Relativity 
dated 30 Oct 2012, we wrote about the relatively lower transactioncosts for buying Singapore private property after Hong Kong introduceda 15% Buyer’s Stamp Duty of its own for non-HK resident homebuyers,when at that time, Singapore’s ABSD was at 10% for foreigners.Following the Singapore government’s latest round of coolingmeasures, the ABSD for foreign homebuyers has now been raised to15% to match that of Hong Kong’s, effectively removing that immediatecost advantage.
But is it necessary to raise it for foreigners?
Looking at the caveatslodged for all non-landed private property transactions in 2012, onewould notice that the percentage of foreign non-PR homebuyers hadremained fairly stable at 7% in each quarter last year. They alsoaccounted for less than 10% of the transactions for properties pricedbelow SGD18,000 psm (or SGD1,670 psf). Hence, the higher ABSDimposed on foreign buying could have been unnecessary, in our view.The imposition of the 7% ABSD on Singaporeans on their second homepurchase and 10% for third and subsequent purchase is to beapplauded, on the other hand, to ensure that home prices are notexcessively driven by investment demand and to maintain affordabilityfor first-time homebuyers.
Fig 4: Non-landed private property transactions in 2012
 
Fig 5: Foreigners most active in >SGD18,000 psm segment
 
Source: URA REALIS 
 
Source: URA REALIS 
 
Which segment bears the brunt of the measures?
In our view, theprivate property market is likely to undergo another deep freeze overthe next 2-3 months as developers and homebuyers grapple with themagnitude of the latest measures. In our view, the mass marketsegment will be the worst hit as marginal investors will be forced to thesidelines, with underlying demand coming mainly from first-timehomebuyers. The high-end segment which had enjoyed a “mini-revival”in the last quarter is likely to go into intermission as well, but we thinkthat longer-term fundamentals will prevail, and the wealthy and savvyinvestors will continue to see value in the segment.
 
01,0002,0003,0004,0005,0006,0007,0008,0009,00010,000
2012Q1 2012Q2 2012Q3 2012Q4
Singaporean Singapore Permanent Residents (PR) Foreigner (NPR) Company
0%10%20%30%40%50%60%70%80%90%100%
less than$5,000psm> $5,000 to$8,000psm> $8,000 to$12,000psm> $12,000to $15,000psm> $15,000to $18,000psm> $18,000to $21,000psmmore than$21,000psmSingaporean Singapore Permanent Residents (PR) Foreigner (NPR) Company

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