The Singapore government announced last week of its landmark decision to raise the Additional Buyer’s Stamp Duty (ABSD) rate and tightened the Loan-to-Value (LTV) limits on residential property purchases, to cool the property market.
While there is no change for Singaporeans and Singapore permanent residents purchasing their first property, for all other individuals and entities, ABSD will be raised by 5% points and 10% points, respectively.
There will also be an additional 5% for developers purchasing residential properties for housing development.
Speaking to Citywire Asia, Liem Khing-An, senior portfolio manager at BNP Paribas Asset Management said the Monetary Authority of Singapore (MAS) is now cautioning of a property bubble building up, which implies that the government may step in more aggressively if the market overheats.
‘The persistent higher than expected pricing in primary projects has resulted in a surge of the official property price index in the first half of 2018,' he said.
‘In our view, the recent measures are in line with the Singaporean government longer term strategy of influencing housing affordability with the goal is to balance affordability.
‘We expect that the recent measures have little impact on corporate earnings and we foresee a slowdown of the house price index in the coming months.'
DBS Private Bank analyst Derek Tan said the combined impact of these measures will see demand from investors and foreigners to cool in the immediate term.
In terms of sales momentum, DBS expects total volumes to fall to 9,000-10,000 units in 2018, and potentially even further if these curbs remain.
‘The aim of these measures came as a surprise in our view and will likely have caught investors unawares,’ Tan said.
‘With sentiment for developers expected to weaken with up to a c.20% potential downside in share prices, we expect further selling pressure on developers in the near term.’
The Singaporean bank is now ‘underweight’ developers, and has downgraded stocks like City Developments to fully valued, UOL Group to hold, Chip Eng Seng to fully valued and Roxy to fully valued.
The group, however, maintains buy on CapitaLand and Frasers Property for its diversified business model, lower exposure to residential market and high dividend yield of 4%-5% respectively, it said.