Daiwa: Singapore property cooling measures ‘beneficial’ to market health

The skyline in Singapore’s central business district.The skyline in Singapore’s central business district.

Daiwa said it was sticking with a Positive view of Singapore’s property sector, expecting the government imposing fresh cooling measures will be beneficial to market health and will help prolong a gradual recovery.

“Singapore history has demonstrated that a hot residential market cannot be cooled immediately with a single measure. And as tough as these measures might appear, we do not believe they can derail the current recovery,” Daiwa said in a note on Friday.

But it said it expected the measures, which included a higher additional buyer’s stamp duty (ABSD) and stricter loan-to-value ratios would “weed out the marginal and vulnerable buyers. “But we believe the pool of genuine buyers, including those who have sold their units through enbloc deals to developers, is still deep, so the current one-year private-residential recovery still has legs,” it said.

Daiwa said it still expected a “restrained, multi-year recovery” in Singapore’s property prices. While it expected the home price increases in the third quarter could be “extremely muted” or negative, it stuck with its forecast for 5-8 percent increases in home prices over 2018-20, the note said.

“We believe this trajectory of a gradual, multiyear recovery is good for property developers too because it will maximize their development profits through a longer market period when prices are rising and transaction volumes are healthy,” it said.

Developers likely will need to be “more prudent” on project pricing and bid less aggressively when land-banking, Daiwa said, but added, “accepting lower profits from project can be offset by a longer recovery window in which they can develop and sell more projects.”

It kept Outperform calls on City Developments and CapitaLand.

Phillip Capital took a similar view, keeping its Overweight view on Singapore property.

“We view it as short term pain for longer term gain,” Phillip said in a note on Friday, adding that it didn’t expect further cooling measures.

“Negative short-term impact on transaction volumes and prices but makes for a more sustainable upcycle with more gradual price increases,” Phillip said.

It said it was reducing assumed selling prices for some projects by an average 7 percent and increasing its sector RNAV discount. RNAV stands for revalued net asset value.

Phillip cut City Developments target price to S$12.60 from S$13.40, but kept an Accumulate call.

It cut Chip Eng Seng’s target to S$1.15 from S$1.21, keeping a Buy call.

It kept CapitaLand at Accumulate with a S$4.19 target, and kept Ho Bee Land at Accumulate with a S$2.98 target.

This article was originally published on Tuesday, 10 July 2018 at 9:56 A.M. SGT; it has since been updated.

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