SINGAPORE (July 12): OCBC Research expects transaction volumes for mortgage loans to come off after Singapore unexpectedly announced more property cooling measures last week.

OCBC says the property cooling measures are reminiscent of those introduced in Jan 2013, which led to a 4.5-year decline in residential property prices in Singapore. This round, there is an increase in additional buyer’s stamp duty (ABSD) and the loan-to-value ratio was brought down by 5% across the board.

From Jan 2013 to the trough in 2016, the Real Estate index shed 28.4% before staging a recovery starting in early 2017. From early 2017 to October 2017, the index gained 33% -- touching a new five-year high.

However, with the latest round of cooling measures, the resultant sharp selldown brought the index down 13.2% year-to-date. Key developer stocks bore the brunt of the uncertainty and fell sharply. Based on historical trends from 2013, the impact is more severe for property stocks than banking stocks.

Based on 1Q18, housing loans accounted for 22% of DBS’s loans book versus 26% for OCBC and 28% for UOB. Together with last Thursday’s bumper sales of  more than 1,000 units during the four hours after the announcement of the cooling measures, OCBC expects this to lessen the impact of slower new loans growth this quarter. However, the longer term potential drop in transaction volumes could impact loans growth.

“We have dropped our valuation to 1.7x book (in line with the decline in regional peers from 1.6x to 1.5x), dropping our fair value from $34.60 to $32.67,” says OCBC, “At current price, dividend yield is 4.6%.”

Meanwhile, the recent regional selldown has brought valuations lower, OCBC says. DBS deserves a higher premium than its peers in this region.

As at 1.07pm, shares in DBS are up 4 cents to $26.05 or 11.4 times FY18F earnings.