The Singapore Government announced a set of property cooling measures effective 6 July 2018 aimed at moderating home price growth. The authorities raised the Additional Buyer’s Stamp Duty (ABSD)  by 5 percentage points for owners of second and subsequent residential properties purchases as well as lifting Loan-to-Value (LTV) limits by 5 percentage point for all new housing loans. On the other hand, developers will now incur a higher remissible ABSD of 25 percent, on top of an additional 5 percent non-remittable ABSD for enbloc transactions.

DBS expects the combined impact of the measures to hit buyers’ sentiments significantly, and projected that total sale volumes to fall to 9,000 to 10,000 units in 2018. Meanwhile, the curbs added further pressure on developers as the revised ABSD increases the capital commitment and the risks for developers looking to add to their landbank. The impacts would spill over to the financial sector, as new loans growth would come off in view of a slowdown in property transactions in the forthcoming months.

United Overseas Bank

Stocks of United Overseas Bank (UOB), the local bank with the largest property-related loans exposure, led losses with a 3.1 percent fall to $26.26 on 6 July 2018. DBS lowered the loan growth forecast for FY18 from 7.5 percent to 6 percent on softer demand, which led to forward earnings cuts of one to five percent through to FY20 on slower loan growth outlook. Notwithstanding that, trade war uncertainties continue to weigh and dampen loan growth prospects.

Despite that, DBS believes that net interest income (NIM) uptrend coupled with lower credit costs should give strong support for the bottom line. Also, DBS notes that UOB is highly capitalised with common equity tier 1 (CET1) ratio at 14.9 percent on a fully loaded basis. This further indicates that its absolute dividend per share of $1 is sustainable.

Given the change in sentiments, DBS downgraded UOB to a HOLD rating and lowered its price target from $33.20 to $28.30.

UOL Group

Despite weakening buyers’ sentiments that would likely impact sales of new residential launches,  DBS believes that UOL Group (UOL) would be less impacted by the cooling measures as most of its landbank, except for the Silat Avenue site, were acquired at less aggressive prices. This provides UOL with more pricing room to avoid lower profits from punitive cooling measures.

Aside from its residential portfolio, 47 to 58 percent of its recurring earnings are derived from retail, office and hotel segments.  With the recovery in both office rental rates and hotel rooms, DBS opines that the group’s defensive earnings would compensate for fluctuations in the development business.

DBS is downgrading its recommendation for UOL to HOLD and slashed its target price from $10.23 to $7.82 based on a revised RNAV discount of 35 percent.

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