Singapore’s Ministry of National Development (MND) announced on the night of 15 Dec 2021 a new round of property cooling measures. While we had previously highlighted the potential of tightening measures, this move still came earlier than ours and the street’s expectations. One of the main revisions is the uplift in Additional Buyer’s Stamp Duty (ABSD) rates with effect from 16 Dec 2021, which would increase by 5-15 percentage points, with the exception of Singapore citizens and Singapore permanent residents buying their first residential property (unchanged ABSD rate of 0% and 5%, respectively. We believe this reflects the government’s intention to continue to support first time home buyers and owner occupiers. We expect home demand to decline in the near-term, with transaction volumes likely to be impacted more heavily than prices.  We believe it is plausible for private new home sales volume to fall back under 10k units in 2022 due to the cooling measures and dampened sentiment.

Another policy revision was the decrease in Total Debt Servicing Ratio (TDSR) threshold from 60% to 55%. We believe this revision is aimed at preventing homebuyers from overextending themselves given the likelihood of interest rate increases in 2022, while a lower TDSR threshold would also make it more difficult for couples to decouple, given the risks of property decoupling in a rising interest rate and uncertain macroeconomic environment. The Loan-to-Value (LTV) limit for HDB housing loans will also be tightened by 5 ppt to 85%, but does not impact loans granted by financial institutions (LTV limit unchanged at 75%). MND also mentioned in its press release that it will be increasing the supply of both public and private housing to meet housing demand. Should residential prices be left unchecked, MND said that it could run ahead of economic fundamentals and raise the risk of a destabilising correction in the future. The latest round of cooling measures will help to dampen demand, promote continued housing affordability and instil better financial prudence.

We expect a negative knee jerk reaction on the share prices of Singapore-listed developers following this latest round of cooling measures. However, based on initial share price reaction, this definitely appears milder as compared to Jul 2018. We believe the more muted market reaction can be explained by the following reasons. First, there were already market expectations of potential property cooling measures, although the timing was earlier than expected. Second, developers are carrying lesser unsold inventory as compared to 2018, while many of them have further diversified overseas following the onerous measures back in 2018. Third, valuations of Singapore developers are cheaper today as compared to Jul 2018.

We believe investors can seek shelter in CapitaLand Investment Limited (CLI SP), given that it would be relatively unscathed from this round of cooling measures following its recent corporate restructuring where its property development arm has been privatised. We also believe any overreaction in UOL Group’s (UOL SP) share price would provide a good entry point, given its cheap valuations, strong management team and solid balance sheet (net gearing of 0.29x as at 30 Jun 2021).   

·      New round of property cooling measures, including tightening of ABSD rates

·      TDSR threshold lowered from 60% to 55%; LTV for HDB granted loans lowered from 90% to 85%

·      Expect negative knee jerk reaction on developers’ share prices; CLI SP more sheltered following corporate restructuring to privatise development arm