New property cooling measures

■ New property cooling measures include higher ABSD rates and lower TDSR.
■ Near-term sentiment and volume demand likely to be negatively impacted.
■ Retain sector Overweight on valuation. Our picks remain CIT and UOL.

Raising ABSD and tightening TDSR

● The government has announced new measures to cool the private residential and HDB resale markets by further raising Additional Buyers’ Stamp Duty rates and tightening Total Debt Service Ratio (TDSR). It will also lower the Loan-to-Value (LTV) limits for loans from HDB. The government will also increase public and private housing supply to cater to demand, details which will be announced on 16 Dec 2021. The rationale for the latest move is to ensure continued housing affordability and that property prices do
not pace ahead of economic fundamentals.

5-15% pt hike in ABSD rates for investment property purchases

● From 16 Dec 2021, ABSD rates for Singapore Citizens (SC) purchasing their second, third and subsequent properties will be raised to 17-25% (from the current 12-15%), while ABSD rates for Singapore Permanent residents (SPRs) will be increased to 25- 30% from 15%. No change in ABSD rates for first property purchases of 0%/5% for SCs and SPRs. Foreigners will also have to pay a higher 30% ABSD rate (up from 20%). Entities that purchase private property will now have to pay a 35% ABSD rate (plus an additional non-remittable 5% for developers), up from 25%/5% currently. The latest measures are targeted at cooling investment rather than owner-occupier demand and dampen near-term market sentiment and volume demand. We believe the increase in ABSD rates for entities and the prospect of increased private and public housing supply could impact the enbloc market more adversely.

TDSR threshold lowered to 55%, HDB loan LTV reduced to 85%

● The government has tightened the TDSR threshold from 60% to 55%. This will apply to loans for the purchase of properties where the Option to Purchase (OTP) is granted on or after 16 Dec and for mortgage equity withdrawal loans applications made on or after 16 Dec. Borrowers with existing property loans granted before 16 Dec will not be affected by the revised TDSR threshold when refinancing their loans. LTV for HDB housing loans will also be lowered from 90% to 85%. How ever, the revised LTV limit
does not apply to loans granted by financial institutions, which stays at 75%. The 85% LTV limit will also apply to new flat applications for sales launched after 16 Dec and complete resale applications which are received by HDB from 16 Dec onwards. Lowering the TDSR threshold to 55% could affect marginal potential buyers and reduce volume demand, how ever, w e believe the impact of the reduction should be limited. We think the tightening of the LTV for HDB purchases is unlikely to have a significant impact
on the HDB market as the additional down-payment can be funded via cash or CPF.

Sentiment on developers likely impacted in the near term

● We expect a negative knee-jerk reaction for property stocks from these measures and sentiment to be impacted in the near-term. However, with developers are already trading at a steep discount to RNAV, in part due to the expectation of new cooling measures; removal of this overhang and improved inventory situation from increased private and public housing supply may underpin share price performance in the medium term. We maintain our sector Overweight and retain our picks as CIT and UOL. Downside risks:
faster-than-expected interest rate hikes that could dampen demand for housing.