Why new HDB measures are another reason to be cautious on Singapore developers

Singapore street scene in Holland VillageSingapore street scene in Holland Village.

The Singapore government’s newly announced public housing initiatives to assuage fears over the 99-year leasehold period are set to improve buyer sentiment in the segment, and that could weigh on demand for private property, Jefferies said in a note last week.

“With HDB owners having some certainty of future value, the new schemes may shift upgrader and investor demand away from private property market,” Jefferies said. “This, along with recently announced cooling measures, rising mortgage rates and upcoming supply of  around 11,000 units, warrants a cautious stance.”

At the National Day Rally, the government set two new programs for Housing and Development Board (HDB) flats: The Voluntary Early Redevelopment Scheme (VERS) which would allow residents to vote to allow the government to take back the flats that are around 70 years old in exchange for compensation, Jefferies noted. The second program, the Home Improvement Program will be expanded to include all HDB flats built through 1997, up from 1986 previously, in a move that will mean every HDB flat is upgraded twice during its lease, whichh will help retain its value, it noted.

“Notwithstanding the fact that the new schemes will not start until a decade later and the specifics are still being worked out, they may start impacting buying sentiment and preferences,” Jefferies said. “HDB resale and private property price may start converging again.”

In addition to the potential for less upgrader demand, investment demand for shoe-box apartments could also be affected, it said.

“While VERS and en-bloc are not exactly comparable, the distinction between a 99-year HDB and 99-year private property is getting a lot less blurred, in our view,” Jefferies said. “Young families that are potential first-time buyers of private properties may start evaluating HDB properties expecting similar redevelopment schemes decades later.”

It lowered its full-year primary sales forecast to 8,500 to 9,000 units from 11,000 to 12,000 units previously and estimated the price index would decline around 4 percent on-half in the second half of this year.

Even though City Developments trades below what Jefferies called a “conservative book value” of S$11.13, it kept its Hold rating, citing no immediate catalysts. It kept its target price at S$11.

The stock was up 0.75 percent at S$9.45 at 10:12 A.M. SGT.

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