OCBC: Singapore property cooling measures ‘sledgehammer to kill a fly’

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The Singapore government’s surprise new cooling measures on the property market are a “sledgehammer to kill a fly,” OCBC said, and it downgraded the property sector to Neutral from Overweight.

The fresh measures, which take effect on Friday, targeted the additional buyer’s stamp duty (ABSD) and loan-to-value limits. The government also introduced a new ABSD of 5 percent on developers purchasing residential properties to be redeveloped, in a move that appeared aimed at the bubbling en bloc market.

“These latest cooling measures were not in our base case, given that private residential prices have only started to increase by less than 10 percent since the second quarter of 2017 trough,” OCBC said in a note on Friday.

It noted that property shares had already been underperforming the broader market so far this year.

“While we previously argued that the positive outlook presented a buying opportunity in the midst of the sector correction, we no longer believe this to be the case,” OCBC said. “Apart from the extra financial burden on second (and subsequent)-home buyers, developers would also find it increasingly challenging to enter into further en bloc transactions, assuming no significant changes to elevated reserve prices.”

OCBC said it would review the recommendations on developers under its coverage.

In a separate note, OCBC said that while the cooling measures wouldn’t hurt the three Singapore banks’ current mortgage portfolios for now, growth could slow for new loans as new property transactions slow ahead.

Housing loans accounted for 22 percent of DBS’ loan portfolio, 26 percent of OCBC’s and 28 percent of UOB’s, it noted.

“We are still fairly positive about the other revenue contributors for the banks, but we expect this headwind to be a dampener on short
term share price performance,” OCBC said. “For longer term investors, short term price weakness could present a good opportunity to gradually buy into banking stocks.”

This article was orginaly published at 12:25 P.M. SGT on 6 July 2017; it has since been updated. 

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