SINGAPORE (Aug 21): Jefferies is reiterating its “hold” call on City Developments (CDL) with a price target of $11, which is based on a 22% discount to a RNAV of $14, with the view that there are no immediate catalysts for the stock.

The research house remains cautious on developers considering the government’s recent announcement of new public housing initiatives, namely the Voluntary Early Redevelopment Scheme (VERS) and a second version of the Home Improvement Programme (HIP II).

See: PM Lee unveils healthcare and housing plans to curb cost of living pressures

While the specifics of the scheme are still being worked out, VERS is intended to be implemented in about 20 years’ time and will be applicable to housing estates that are about 70 years old.

Meanwhile, HIP II and the first HIP rolled out in 2007 will see every HDB flat in Singapore upgraded twice during its lease to help retain its value, with HIP II to commence in about 10 years’ time.

In a Tuesday report, equity analyst Krishna Guha opines that the new schemes may start impacting buying sentiment and preferences now that HDB owners have some certainty about their future asset value.

In his view, this could start to drive bids back to the HDB resale market and help converge HDB resale and private property prices.

“As demand shifts back to the public market, there is likely to be less upgrader demand. It is also possible that investment demand for shoe-boxes will be dented. 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,” says Guha.

“Coupled with cooling measures announced earlier (note here), we expect private property market volumes and prices to be negatively impacted. We have lowered our full-year primary sales forecast to 8.5K-9K units (earlier 11-12K units) and expect the price index to decline about 4% HoH in 2H2018,” he adds.

The analyst also highlights the possibility of a second order impact from the way the schemes are financed, with tax hikes lowering disposable income.

“However, there are offsetting factors such as more certainty on HDB home values, lower monthly outlay for mortgage for buyers choosing HDB over private property, etc. Given the recent cooling measures, new public housing initiatives, upcoming supply and rising mortgage rates, we stay cautious on developers,” concludes Guha.

As at 2:53pm, shares in CDL are trading 6 cents higher at $9.55.