Singapre Property

STI : 3,150.44

Policy fine-tuning targeting at financial prudence.
MAS has introduced a new debt servicing framework for all property loans granted to individuals. These measures, effective from 29 June 2013, are structural in nature, put in place for the long term and are aimed at encouraging prudent borrowing by households and strengthen financial institutions (FIs) credit underwriting standards. Under the new ruling, FIs will be required to adhere to a TDSR of 60%. In addition, MAS will also require borrowers’ names on a property to be the mortgagors of the residential property which the loan is taken, guarantors who are standing guarantee for borrowers who do not meet the TDSR to be brought in as co-borrower, in case of joint borrowers the income weighted average age of the borrowers when applying for loan will be used.

Impact on volume demand.
We think the latest move would not have a large impact on the property market, rather on those who have a more highly leveraged balance sheet, and push buyers to look at smaller units to lower financing capacity to meet the revised TDSR. In general, household balance sheets have remained healthy with a liability to asset ratio of 16% as at 2Q12. Our current projection is for a 20% drop in volume demand this year with prices remaining relatively unchanged at - 5% yoy and we are maintaining this view. 5MTD primary home sales ex-ECs are 23% lower yoy, largely in line with projections.

Neutral on absence of near term catalyst, selective stance adopted.
We do not expect significant effect on share prices following this announcement although sentiment in the short term will be dampened. The sector is now trading at 34% discount to RNAV, close to the -1stdev after the recent sell-off. While RNAVs should remain relatively robust this year, headwinds from property fine tuning and China slowdown will continue to exist. In the absence of near term catalyst to boost sector performance, we are neutral on the property sector and is selective in our stock picks. We like UOL for its diversified portfolio and the potential to unlock hidden value in its assets.