Coal For Christmas

The government introduced three new cooling measures aimed at dampening the property market. We were surprised at the extent of the measures given that they affect a very broad swathe of the market, as well as the timing since recent data has arguably not shown that prices are “out of control”. Nevertheless, we maintain OVERWEIGHT on the property sector heading into 2022 as we believe that the market will adjust to the new normal, backed up by firm economic fundamentals.


Not the Christmas present that the property market expected. On 16 Dec 21, the Singapore government announced a number of property cooling measures targeted at both public and private markets, and will impact aspiring buyers of HDB flats all the way to ultrahigh net worth individuals. Ostensibly, the measures are intended to “dampen the broad-based demand” seen in the property market in the past 12-24 months; however, the timing and the extent of the measures were surprising to us. These new measures include: a) higher Additional Buyers’ Stamp Duty (ABSD) rates, b) tightened total debt servicing ratio (TDSR), and 3) reduced loan-to-value (LTV) for HDB granted loans.

Discouraging property as an investment class. As can be seen in the table below, the materially higher ABSD for second, third and subsequent properties for citizens and permanent residents (PRs), and higher ABSD for all foreigners, indicates that the government is trying to discourage property as an investment class for the foreseeable future. We nevertheless note that the inventory of private residential property has declined 54% in the past two years (see chart on the right) and should this trajectory remain, prices
are likely to remain firm.

Reduction in LTV for HDB grants was a surprise. While we had expected some tightening of the TDSR (a reduction from 60% to 55% in this instance), we were surprised that there was also a reduction in the LTV for HDB grants from 90% to 85%. The latter reduces the amount that potential homebuyers can borrow from the HDB and thus results in such buyers needing to increase the amount of cash or CPF contribution. We had not anticipated this penalty being imposed on HDB buyers, with widespread media coverage about selected HDB apartments being sold for in excess of S$1m perhaps triggering this precautionary move to impose a level of prudency into the HDB market.

Waving goodbye to en bloc. While the market had been expecting the en bloc trend to continue into 2022, the latest cooling measures may have put paid to some of these hopes. The increased ABSD from 25% to 35% increases the risk for developers assuming failure to sell all of their units in a development within a five-year time frame. As a result, smaller en bloc projects with fewer units for sale may be more attractive to developers, while the larger en bloc projects may face greater challenges attracting agency and developer interest.


We retain our OVERWEIGHT rating on the Singapore property sector given our expectations for the economy to continue its upward growth trajectory from 2021 into 2022. We highlight that UOB Global Economics & Markets Research forecasts Singapore GDP to grow 3.5% yoy in 2022 after a solid post-COVID-19 rebound of 6.5% yoy GDP growth in 2021.Despite the relatively high base in 2021, growth in 2022 should be underpinned by the export and manufacturing sectors, which will benefit from the expected recovery of Singapore’s key trading partners as they bolster their vaccination efforts into 2022.

Share prices should stabilise in the near term. In our view, valuations for Singapore’s property developers and agencies were not stretched heading into these new cooling measures and thus downside to current share prices should be limited. At the close of trading on 16 Dec 21, City Developments (CDL) was trading at a 2022E PE of 15.1x while Propnex was trading at an ex-cash 2022E PE of 9.5x. CapitaLand Investments (CLI SP, BUY, target price S$3.64) was not affected by these measures.

CDL: We retain our BUY rating on the stock and target price of S$8.50. Our assessed RNAV for the company is S$13.50/share with our discount to RNAV unchanged at 40%. We note that CDL disclosed during its 1H21 results briefing that its RNAV (including re-valuation of its hotel portfolio) was S$17.00/share as at end-1H21. In our view, CDL’s valuations appear inexpensive: its 2022 P/B of 0.7x is more than 1.5SD below its five-year P/B average of 0.92x while its 2022 PE of 15.1x is a 14% discount to the company’s past-five-year average of 17.5x. At our target price of S$8.50, CDL would trade at a 2022F P/B of 0.9x which we view as fair.

Propnex: Maintain Propnex at a BUY rating with a target price of S$2.17 based on a target PE multiple of 12.6x which is 2SD above the company’s historical PE average of 6.8x. We had not factored in any earnings from its en bloc efforts in any case, and thus our estimates for 2021 and 2022 are unchanged. Given the company’s huge cash pile of S$123.7m as at end-3Q21, which equates to S$0.33/share, we note that its ex-cash PE is only 9.5x which we view as inexpensive.


• Continued economic recovery from COVID-19 especially resumption of leisure and business travel.