The Singapore government stepped in to introduce cooling measures at the start of July to prevent Singapore’s property from overheating. Additional buyer stamp duty (ABSD) and tighter loan-to-value (LTV) limits were both adjusted to the surprise of the market.
What Were The Property Cooling Measures Introduced?
The ABSD was raised by five percentage points for Singapore citizens who are buying their second or subsequent residential properties. For Singaporeans buying their second home, the ABSD will be raised from seven percent to 12 percent. For those who are buying their third or subsequent home, ABSD will be raised from ten percent to 15 percent.
The government also introduced an additional ABSD of five percent that is non-remittable for developers purchasing residential properties for housing development.
Discount In Valuation Of Developers
Despite the latest property cooling measures, CIMB thinks that the property sector could still be worth investing in. Property developers are currently priced at a 46 percent discount to RNAV. The discount is much more than the average discount to RNAV (15 percent) for developers since 1995. The current valuation of property developers is similar to the 2011 and 2013-14 period where there was a slowdown in the residential property market.
2 Headwind-Resistant Property Developers To Invest In
However, CIMB cautioned that investors should still be wary when investing in the property sector after the latest cooling measures. Investors should be looking at diversified developers with strong financials, which are expected to be more resilient in the current outlook. Once the dust settles, well-diversified developers with strong balance sheets will be more stand out from their peers.
Among developer stocks, UOL Group (UOL) is CIMB’s top pick. CIMB notes that UOL’s residential and commercial property portfolio is predominantly focused in Singapore. On the residential front, UOL’s plans to market The Tre Ver is likely to enable the group to preserve development margins, especially given that its land cost was competitively priced. Its recent win of the Silat Avenue has also replenished UOL’s development land bank before the latest cooling measure announcement.
In addition, UOL has recently become a major office landlord post consolidation of UIC’s earnings. The expanded UOL now owns a total of 5.7 million sq ft of office and retail space in Singapore. With its office properties located in both the central business district (CBD) and city fringe areas, UOL is in a good position to benefit from the office sector recovery.
BUY, TP $9.62; Current Share Price $7.17
CIMB has identified City Developments (City Dev) as the bellwether property stock in Singapore. CIMB highlights that City Developments has extended its residential development earnings with a current land bank with ~3,100 attributable units. With The Tapestry project receiving good sales response, the group is set to roll out The Opus in 2H18. In addition, City Developments has a good pipeline of high-end projects slated for launch in 2018, including South Beach Residences and the Hotel Boulevard site.
CIMB emphasised that City Development’s balance sheet remains strong even after accounting for its current outstanding land capital expenditure commitment. Its valuation is also attractive as the stock is trading at -1 standard deviation discount to revalued asset backing.
BUY, TP $13.40; Current Share Price $10.30