Nomura: Singapore property cooling measures negative for economy

Singapore’s latest property cooling measures will have a net-negative impact on the city-state’s economic growth, Nomura said in a note on Monday.

“We believe the government will tighten macroprudential measures until property prices resume their decline. When that happens, the impact on growth becomes negative,” Nomura said.

In early July, Singapore’s government announced a fresh round of cooling measures for the property market, targeting the additional buyer’s stamp duty (ABSD) and loan-to-value limits. The surprise measures set off a selloff in property stocks and banks.

Nomura has estimated that a 10 percent decline in residential property prices would lead to a cumulative 0.6 percentage point drop in gross domestic product growth, with the impact coming with a three-to-four quarter lag.

The bank said it remained cautious on the economic outlook, forecasting GDP growth would slow to 3.0 percent this year, from 3.6 percent last year, and to 2.5 percent in 2019.

It noted that the latest round of cooling measures may not be effective, pointing to still healthy crowds after the new measures. Nomura said it still forecast private residential property prices to rise 10 percent this year, while remaining flat in 2019.

“If the latest round of measures fails to cool the property market, we would expect further tightening, possibly as soon as early October. The Total Debt Servicing Ratio (TDSR) framework could eventually be tightened,” it said.

But it added that it didn’t expect much more downside in property-related equities.

“In the property sector, with valuations already near trough levels, we think potential downside to share prices is likely limited in the near term, although near-term positive catalysts to rerate the sector meaningfully are likely absent as well,” Nomura said. “For banks, we see little impact on asset quality both in the near and medium term. In the long term, the cooling measures should continue to support already-excellent mortgage asset quality.”

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