SINGAPORE (July 6): After warning of “market exuberance” in the property market for the past six months, the Singapore government has finally raised Additional Buyer’s Stamp Duty (ABSD) rates by 5 ppts and tightened Loan-to-Value (LTV) limits by 5 ppts.

In terms of demand, sales momentum is expected to turn cold. According to a Friday report by DBS Group Research, the combined impact of these measures raises the cost of ownership on an assumed $1.5 million property purchase by $75,000 for first-time buyer and $150,000 for investor.

With the increased upfront capital commitment, DBS expects demand from investors and foreigners to cool in the immediate term. In terms of sales momentum, total volumes is expected to fall to 9,000-10,000 units in 2018, and potentially even further if these curbs remain.

On the supply side, the en-bloc market could potentially grind to a halt as developers to recalibrate their strategies to clear unsold stock acquired at high prices.

According to DBS, the revised ABSD rates -- 25% ABSD and an additional 5% non-remittable for en-bloc sales -- greatly increases the capital commitment for developers looking to land-bank further in a period of increased uncertainty in buying volumes and heightened supply entering the market in the coming two years.

This means the immediate strategy for developers with upcoming launches will be to re-look at their pricing and launch strategy. In the longer term, if sell-through rates do not follow through, the risk of potential write-off to land values will be a concern. However, this is not a base case scenario at this moment.

With sentiment for developers expected to weaken with up to a 20% potential downside in share prices, DBS expects further selling pressure on developers in the near term.

DBS is cutting developers to “underweight” and downgrading the following stocks: City Developments to “fully valued” with $10.00 target price, UOL to “hold” with $7.82 target price, Chip Eng Seng to “fully valued” with 75 cents target price and Roxy-Pacific to “fully valued with 40 cents target price mainly on increased discounts to RNAV. APAC Realty has also been cut to “fully valued” with 66 cents target price.

“We maintain “buy” on CapitaLand with $3.62 target price and Frasers Property with $1.90 target price for its diversified business model, lower exposure to residential market of less than 5% and high dividend yield of 4%-5% respectively,” says lead analyst Derek Tan.

As at 1.29pm, shares in CapitaLand are down 15 cents at $3.03 while shares in Frasers Property are down 4.2% at $1.60.