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Property share prices likely to be 'more muted' than in previous rounds due to attractive valuations: DBS

Felicia Tan
Felicia Tan12/16/2021 10:19 PM GMT+08  • 4 min read
Property share prices likely to be 'more muted' than in previous rounds due to attractive valuations: DBS
The analysts estimate that the en-bloc market may take a back seat as more land-banking options are now available to developers.
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DBS Group Research analysts Derek Tan and Rachel Tan say the negative knee-jerk reaction in the share prices of property developers is likely to be “more muted” compared to that of previous rounds.

See: Fresh set of property cooling measures with immediate effect and Property counters on SGX see red as cooling measures kick in

The analysts’ report comes after a fresh set of cooling measures were announced in the late hours of Dec 15. A few hours later, property counters on the Singapore Exchange (SGX) saw red as share prices dived.

However, the analysts note that the Singapore Developer Index (FSTREH Index) is currently trading at a multi-year low at close to 0.6 times price-to-net asset value (P/NAV), which is deemed attractive.

“This level is close to its 10-year low and below the support levels over the last two sets of cooling measures in 2013 and 2018,” write the analysts in a Dec 16 report.

Calling the latest round of cooling measures a “timely brake” on the rise of property prices, the analysts say that the rules are generally targeted at investors instead of owner-occupiers, given the differentiated approach in the changes in the additional buyers’ stamp duty (ABSD) rates.

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“We anticipate that prospective buyers, especially the investors, now faced with higher ABSD rates, will most likely hold back their purchase decisions. This should result in a drop off in transaction volumes for upcoming launches,” they write.

In addition, the anticipated wave of foreign buyers coming in upon the recent launch of the vaccinated travel lanes (VTL) will most likely cool. This is due to prospective buyers now facing a 10-percentage point hike in stamp duties.

“[They will now have] to reconsider their purchase decisions, especially when they will have to cough up almost 30% (vs 20% before) of the property price in the form of taxes,” say the analysts.

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“For a $2 million property, that will mean up to $100,000 more in taxes to be paid,” they add.

Amid the higher number of transaction volumes, which stood around 10,000 in 9M2021, above the average of 9,000 to 10,000 units per annum seen in recent years, the analysts expect volumes to take a hit and fall back to the average 7,500 to 8,500 units.

Property indices are also likely to have peaked for the near term.

The property price index (PPI) has risen by some 8.4% to date since March 2020, while the HDB resale index has risen by almost 13% over the same period.

“With anticipated cooling in transaction volumes and sellers’ asking prices (which have been very buoyant recently), we believe that the PPI has peaked for the near term,” say the analysts.

The reduction in the total debt servicing ratio (TDSR) to 55% from 60% is seen as a positive for households in the longer-term, as it “further encourages financial prudence”, say the analysts.

“The lower rate will prevent households from over-leveraging themselves in the midst of possible rise in interest rates which will have an impact on their mortgage servicing burden,” they add.

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“In addition, the cut in the loan-to-value (LTV) for HDB housing loans from 90% to 85% will mean higher cash outlays from buyers of new or resale HDB homes, implying that sellers will likely need to cut asking prices while cash-over-valuations (COV) will likely drop off, implying that upgraders will have less upfront cash to roll into their next property purchase,” they continue.

What will happen to the en-bloc market

The en-bloc market, which is starting to heat up, may see limited interest moving forward, as the government releases more land banking options to developers.

On Dec 16, the government released a total of 13 sites under the 1H2022 Government Land Sales (GLS) Programme.

The move is done to ensure a “sufficient supply of private housing to meet demand and ensure market stability”, says the Ministry of National Development (MND) in a press release dated Dec 16.

“GLS sites are typically faster to market given that the process from bidding to award is more straightforward and less time consuming when compared to en bloc,” note the analysts.

Photo: Samuel Isaac Chua/The Edge Singapore

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