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RHB remains 'neutral' on real estate sector as cooling measures mainly target high-end HDB market

Felicia Tan
Felicia Tan10/4/2022 08:42 PM GMT+08  • 2 min read
RHB remains 'neutral' on real estate sector as cooling measures mainly target high-end HDB market
Homes in Singapore. Photo: Bloomberg
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RHB Group Research analyst Vijay Natarajan is remaining “neutral” on Singapore’s real estate sector as the government released another set of cooling measures on Sept 30.

“The latest measures mainly target the high-end Housing & Development Board’s (HDB) resale market while ensuring property purchase prudence by adjusting mortgage ratios,” the analyst notes in his report dated Oct 3.

On the measures, the analyst deems these as a “light touch” and “targeted”, which means that the impact on the private property sector is expected to be “relatively mild”.

“The higher interest rate assumption in total debt servicing ratio (TDSR) computation should lower maximum affordability levels 5% and will likely have a slightly negative impact on mass market segment volumes,” the analyst writes. “We think these measures should also cool down some of the frenzy and fear of missing out or FOMO sentiment seen in new launches, with marginal slowdowns seen on private property prices.”

However, the cooling measures are likely to prompt more buyers to consider renting instead. The rental market itself has already set new highs due to a supply crunch, construction delays, and the opening up of borders.

“We expect overall rent to rise 10% in 2022 and increase another 2%-5% in 2023,” says Natarajan.

See also: CGS-CIMB lowers China Sunsine's TP to 60 cents due to potentially weaker FY2023

Overall, the analyst is keeping his volume and pricing assumptions unchanged.

“New home sales for the full year are likely to come in at the lower end of our expectations of 8,000-9,000 units. Overall resale transactions are expected to decline 15%-20% with a sharp slowdown in HDB resale transactions in 4Q. Our pricing forecast remains unchanged: %4-6% in 2022 and -2% to +2% in 2023,” he writes.

On this, the analyst sees listed real estate agencies suffering from larger impacts from the slowdown in transactions. However, the impact on property developers will be low on “limited unsold inventory and depressed valuations (50-60% below [their] revised net asset values or RNAV) that largely prices in the downside”.

See also: CLSA upgrades CLAR and Keppel DC REIT, issues downgrades on seven other S-REITs

Among the SGX-listed stocks in the property sector, Natarajan’s top pick is City Developments (CDL). He has kept “buy” on the counter with a target price of $9.75.

Shares in CDL closed 21 cents higher or 2.78% up at $7.76 on Oct 4.

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