• New financing and ownership measures affect public & private housing, industrial properties
• Volume demand to dip on reduced affordability and access to funding
• Maintain Buy on CMA and Capitaland, downgrade Ho Bee to FV
Cyclical and structural measures to affect private and public housing ownership and financing. In its most encompassing move to date, the government has further tightened financing for both public and private residential properties with LTVs lowered 20-80% and raising ABSD to 3-18%, limit affordability of public housing with a higher mortgage service ratio. The government has also highlighted that these are cyclical measures that are temporary and can be removed in the longer run. Structurally, longer term moves include discouraging multiple-home ownership for PRs and foreigners. To signal the intent of Executive Condominiums to remain as an affordable housing option, it also fine tuned demand and put in place guidelines on space and development periods. It has implemented SSD on the industrial sector to clamp down on speculative activity.
Volume demand will dip as buyers assess revised affordability and funding access. Amongst the latest moves, we see the higher
down payment requirement and lower mortgage service ratio as likely to have a larger impact on both segments of the residential market as shorter loan tenures and lower mortgage service ratios reduces “affordability” of buyers. Our current projection is for a 20% decline in volume sales for this year. We believe residential prices would see a potential downward pressure with large incoming supply of public and private housing from late 2013 and maintain our expectation for a 5% dip in private home prices this year. The key to watch for remains vacancy levels and rental yield spreads.
Selective stock picking. In such a policy driven environment, we believe investors will continue to adopt a defensive stock picking strategy. We expect sentiment on property stocks with significant exposure to the residential sector such as City Dev to be impacted in the short term and reiterate our Fully Valued call. While performance of mid caps such as Wing Tai could be affected in the short term, we believe its attractive valuations would provide some support. Our strategy would be to prefer developers with potential for asset monetization to close discount gap to RNAVs such as CMA (Buy, TP $2.28) and Capitaland (Buy, TP $4.09). Downgrade Ho Bee on valuation as share price has exceeded our TP of $1.89.
Property sector takes another hit
The government has announced further measures to cool the Singapore public and private residential housing markets as well as the industrial sector. In its latest move, it continued to tighten financing for residential purchases to encourage financial prudence and rein in investment and foreign demand. It also strengthened its commitment on public housing and EC segment by introducing imposing restrictions on size and buyer profile. It also further restricted speculative activity in the industrial sector. These measures will be effective from 12 Jan 2013.
Private Housing Sector
Tighter ownership rules for investors and foreign buyers. The government has increased the Additional Buyers’ Stamp Duty (ABSD) from 3-10% to 5-15% and imposed ABSD on Singaporeans purchasing their second residential property. This is on top of the regular buyers stamp duty of 3% for all categories. Singaporeans would now have to pay a total of 10% stamp duty (vs 3%) previously for their second property purchase, while those acquiring their third would pay 13% vs 6% previously. Meanwhile PRs would have to bear 8-16% stamp duty vs 3-6% previously for the first and subsequent private residential property. For foreigners and non-individual buyers, the cost would go up to 13-18%.
However, Singaporean first-time buyers and Singaporean buyers of HDB flats will not be affected by this move. The ABSD will be refunded if Singaporean married couples sell their existing first property within 6 months of purchase of a second property or obtaining TOP or CSC for the second property. Singaporean couples must also not acquire any other property before selling the first property to avail themselves to the ABSD refund.
The government also tightened ownership and occupation rules for PRs to discourage multiple property ownership and ensure genuine and owner-occupation demand. PR households must sell their HDB flat within 6 months of getting their private properties.
Limiting financing
In this low interest rate environment, cheap and ample liquidity was part of the reason for the strong demand for real estate. As such, the government is clamping down on use of leverage by implementing higher cash down payments and lowering LTV on mortgages.
Cash downpayments (excl. CPF contributions) have been raised from the present 10% to 25%, even higher than the 20% imposed during the last cycle. This effectively increases the equity component of purchasers and de-risk banks in the event of a price downturn.
Singapore LTV ratios, on the low end, are even lower than those allowed in HK. They have been lowered to 20-80% for second and subsequent mortgages from 40-80% previously. In line with its move to limit multiple property exposure, LTV for second mortgages have been lowered to 50% or 30% if the loan tenure is more than 30 years or extends past the age of 65. For the third property, LTV drops further to 40% or 20% for long tenure loans and older mortgage holders. For nonindividual holders LTV is reduced from 40% to 20%, almost forcing them to make cash purchases.
A borrower will not be subject to the lower LTV and higher minimum cash down payment requirements when he obtains another housing loan for the purchase of a property which is an EC purchased directly from a property developer or a HDB flat. For these borrowers, the cash down payment remains at 5% or 10% (if loan tenure >30 years or loan period extends beyond the retirement age of 65 years old). The borrower must provide the financial institutional granting the loan a copy of the signed undertaking to HDB committing to complete the sale of his sole existing property within the stipulated period. This exemption will allow borrowers to be treated as individuals with no outstanding housing loans.
Public Housing Sector
Lowering mortgage service ratio (MSR) for HDB flats from 40% to 35% for HDB loans and 30% for loans from other FIs. Currently HDB offers housing loans with a mortgage service ratio (MSR) of up to 40% of a borrowers’ gross monthly income. From 12 Jan 2013, this will be lowered to 35%. In addition, MAS will set a MSR limit of 30%, calculated using a medium interest rate and not the initial introductory rates, for loans granted by MAS-regulated financial institutions for the purchase of HDB flats. This will apply to those with option to purchase granted on 12 Jan 2013 and after.
We believe this is targeted at the resale HDB market where resale prices continued to rise by 6.6% last year and cash over valuations (CoVs) remain high. Effectively, limiting the MSR also affects absolute affordability, and buyers of a similar priced unit and loan tenure would now have to fork out more cash up front, take a smaller loan or buy a lower price unit. Effectively, a 10% drop in MSR would translate into a 25% reduction in the house price, all else being equal, or almost doubling up front cash upfront for the same unit.
In addition, the use of CPF Funds and Provision of HDB loans to purchase public housing is also being revised. Currently, there are limits on the use of CPF funds for the purchase of private residential properties with less than 60 years remaining lease. MASregulated FIs also consider the lease period of properties in granting home loans.
The rules on the use of CPF funds for private residential property purchases with less than 60 years remaining lease will apply to the purchase of public housing with similar lease duration from 1 July 2013. In tandem, HDB will revise its terms for HDB housing loans from 1 July 2013.
Discouraging PRs from owning multiple homes
PRs disallowed from sub-letting whole HDB flats. In tune with the government’s intent to discourage multiple-home ownership, from 12 Jan 2013, PR households will be disallowed from subletting their whole flat. This will apply to existing PR households who own a HDB flat and PR households who intend to buy a resale flat. Currently, a PR flat owner can sublet his whole flat after meeting the minimum occupation period. However, PR households will continue to be able to sublet rooms.
Executive Condominiums
ECs to remain a source of affordable housing. In an effort to ensure that executive condominiums (ECs) remain an affordable housing option for middle income Singaporean families, the government has
i) capped the maximum strata floor area of new EC units at 160sm, and
ii) allowed sale of new dual key EC units to multi-generational families only.
On the supply side, developers of future EC sale sites from the GLS will only be allowed to launch units for sale 15 months from the date of award of sites or after the physical completion of foundation works, whichever is earlier. Private enclosed space and private roof terraces will now be treated as GFA. Such spaces in non-landed residential developments, including ECs, will be counted as bonus GFA and be subject to payment of charges.
In addition to matching living needs to house sizes, this move effectively puts a ceiling on the absolute pricing of the EC units based on size allowed, while the additional GFA would increase development costs and affect returns, and would discourage rampant addition of space to maximise returns.
Industrial sector
Clamp down on speculative activity. With the doubling in industrial property prices over the past three years and increasing speculation in this sector, the government is introducing a Sellers Stamp Duty (SSD) to rein in and speculation.
From 12 Jan 2013, the SSD will be imposed on industrial properties and land sold within three years from the date of purchase. The SSD will be 15% for properties sold within the first year of purchase, 10% if held between 1-2 years, and 5% if held between 2 and 3 years.
This is aimed at reducing speculative activity in this segment while allowing owner occupiers to continue to manage their cost structures. In 9M12, the number of strata-titled industrial transactions exceeded 2,000 units, a level not seen in the past 10 years. This was partly addressed with restrictions imposed last year for certain developments that can be subdivided into strata units within 10 years of TOP, and a minimum size requirement of 1,615sf for strata units in strata title developments, as well as units in multi-user industrial developments. It also ensured affordable land supply with the reduction of land tenure of future industrial government land sites from 60 to 30 years. However, ample liquidity continued to fuel these retail transactions.
No comments:
Post a Comment