City Developments ADD, TP S$8.97, S$7.61 close
In our view, City Development’s (CIT) land restocking activities, with a potential launch pipeline of c.2,000 units, would extend the visibility of its residential earnings. Value unlocking activities and nascent recovery of the global hospitality industry could catalyse its share price. The stock is trading at a 53% discount to RNAV.
UOL Group ADD, TP S$8.00, S$6.44 close
UOL Group has a high recurring income base, supported by rentals, hotel operations and investment holdings. It has good office exposure through Singapore Land Group (SLG SP, NR). UOL is now trading at a 52% discount to RNAV.
Another round of property cooling measures
- New cooling measures to lower affordability, reduce HDB loan limits, and slow down HDB resale demand from down-graders.
- Near-term sentiment and volume demand likely to be impacted.
- Retain sector Overweight on valuations. Our picks remain CIT and UOL. Raising interest rate floor for
DSR computation by 0.5% pts
? The government has announced a new round of property cooling measures, effective from 30 Sep 2022. Firstly, for property loans granted by financial institutions (FIs), MAS will raise the medium-term interest rate floor used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Service Ratio (MSR) by 0.5% points, to 4% for residential loans and 5% for non-residential loans. This will apply to loans for property purchases where the Option to Purchase (OTP) of the Sale and Purchase Agreement is granted on or after 30 Sep 2022. For housing loans granted by the Housing Development Board (HDB), HDB will introduce an interest rate floor of 3% for computing the eligible loan amount. This change will not affect the actual HDB concessionary interest rate of 2.6% p.a. The move to raise the evaluation interest rate is in tandem with the current rising interest rate environment. We believe this move should not be too punitive, potentially dialling down buyers’ loan quantums and property purchase values by 5-6%. Lowering LTV for HDB housing loans
? The second cooling measure is the lowering of the loan-to-value (LTV) ratio for HDB housing loans from 85% to 80%. The revised LTV limit will apply to new flat applications received on or after 30 Sep 2022. LTVs for HDB loans granted by FIs will remain unchanged at 75%. We think the tightening of the LTV for HDB purchases is unlikely to have a significant impact on the HDB market as the additional downpayment can be funded via cash or CPF.
Wait-out period for PPOs buying non-subsidised HDB flats
? Thirdly, as a temporary measure to moderate demand for resale flats, a wait-out period of 15 months will be imposed on private residential property owners (PPOs) and ex-PPOs, after the disposal of their private properties, before they are eligible to buy a non-subsidised resale flat. This 15-month wait-out period will not apply to seniors aged 55 years and above who are moving from their private property to a 4- room or smaller HDB resale flat. While this would mean a possible slowdown in transaction volumes, the flipside is that sellers may need to rent a place to stay during this period and this could buoy up the already tight rental market.
Sentiment on developers likely impacted in the near term
? We believe the impact from these changes should be relatively neutral but expect sentiment to be affected in the near term. However, developers are already trading at a steep discount to RNAV. 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.