Property market gets the chills
Singapore government’s measures to curb property speculation sent shares of city-state’s biggest developers down the most in 11 months few days ago (14 Jan). The Straits Times Real Estate Index fell 0.3% at the close, with three stocks falling for every two that gained. CapitaLand, Southeast Asia’s biggest developer, fell 3.4%, while City Developments, the second largest, declined 4.6%, both retreating by the most since Feb 22.
The new cooling measures include extending the holding period of sellers stamp duty (SSD) from the current three years to four. The SSD has also been raised to 16%, 12%, 8% and 4% for properties that are bought after Jan 14 and sold within the first to fourth years respectively. This is payable regardless of whether the property is eventually sold at a gain or a loss. Also, unlike capital gains tax where sellers are taxed on their gains, the SSD is taxed on the full consideration of the property sold. This measure is therefore a significant deterrent for short-term speculators, research house Macquarie surmises.
Meanwhile, the loan-to-value (LTV) limit on housing loans for property purchasers who are not individuals will also be lowered to 50% while the LTV for individuals with one or more housing loans at the time of purchase will be lowered to 60%. The measures also take effect from Jan 14.
“The move, after the recent tightening in Aug 2010, is again targeted at dampening demand, while waiting for the supply side mechanism (increased public and private supply) to take effect,” write analysts from DBS Vickers in a Jan 14 note to investors.
“The move, after the recent tightening in Aug 2010, is again targeted at dampening demand, while waiting for the supply side mechanism (increased public and private supply) to take effect,” write analysts from DBS Vickers in a Jan 14 note to investors.
Most brokers expect the government’s latest moves to impact sentiment and trading activity in the property sector just as property stocks had made some positive progress in recent weeks. “We expect immediate drop in volume transactions,” the brokerage notes. “Hence, we believe primary sales projected for this year could tilt towards the lower end of our 10,000-12,000 units estimate,” says the research house.
Consequently, property stocks are expected to react negatively, particularly those with a higher exposure to the mass-market segment such as CityDev, with 29% of its gross asset value (GAV) exposed to the mass-market, as well as Wing Tai Holdings and Fraser and Neave, which have 15% and 5% of GAV in the low-end segment respectively.
“Our estimate for property prices is for a 7% rise this year. With these new measures, we suspect overall prices will be affected if the expected transaction volume decline is more protracted this round, which may force some developers to consider lowering selling price expectation to move their inventory.” says one of the brokerage firm. The one saving grace for local mass-market developers is their low level of gearing at about 36% which provides financial flexibility, and some believes Allgreen Properties will most likely be affected, given its high exposure to the Singapore residential market.
“Our estimate for property prices is for a 7% rise this year. With these new measures, we suspect overall prices will be affected if the expected transaction volume decline is more protracted this round, which may force some developers to consider lowering selling price expectation to move their inventory.” says one of the brokerage firm. The one saving grace for local mass-market developers is their low level of gearing at about 36% which provides financial flexibility, and some believes Allgreen Properties will most likely be affected, given its high exposure to the Singapore residential market.
(info extracted from EDGE)
