Theme #3: Measures on the property sector
Too early to remove cooling measures. Our property developer analyst Wilson is of the view that the anti-speculation measures, introduced since 2009, will unlikely be removed in 2014. In his sector report, Tipping On Tapering, dated 17 Dec 2013, he explains why:
Mortgage rates are only expected to rise in 2015. Removing the measures prematurely could spark another round of irrational exuberance.
According to its Financial Stability Review 2013 issued on 3 Dec, the Monetary Authority of Singapore (MAS) estimates that 5-10% of borrowers in Singapore have monthly debt-servicing burden greater than 60%, suggesting that they are overleveraged. Should mortgage rates rise by 3ppts, the MAS estimates that the proportion of overleveraged households could increase to 10-15%. To put that in perspective, ~18% of resident households live in private properties as at end-2012, which implies that the number of overleveraged households may be more than half of the total number of households living in private properties.
While the investment and speculative demand has waned, its proportion remains high at 26% (Figure 20). From the outset, the government has said that the Total Debt Servicing Ratio (TDSR) framework is structural in nature and meant for the long term in order to instil lending discipline among the financial institutions and encourage financial prudence by individuals.
Softer approach via scaling back GLS and HDB BTO supply. Instead of reversing the cooling measures, we believe the government is more likely to:
Scale back the rollout of private residential units under the Government Land Sales (GLS) programme. This is evident in the 1H14 GLS programme, whereby total private residential units made available was cut to 11,585 (2H13: 14,155, 1H13: 14,035), making it the lowest planned rollout since 1H10 (Figure 21). In fact, the cutback came earlier than we expected and it may well be a reflection of the government’s concern over the impending oversupply situation.
On the public housing front, we expect the government to taper its pace of Build-to-Order (BTO) rollout from 2014 after three years of ramped-up launches. This is because the majority of the backlog of first-time buyers has been substantially cleared, given the very strong bookings seen over the past three years (Figure 22). Note that 13,600 new HDB flats were completed and delivered last year and the number is expected to double to 28,000 this year. In a recent announcement, HDB said the supply of new HDB flats will decline to 24,300 in 2014, representing a 3% drop from the year before.
Bottomline: The key messages are:
While the abovementioned measures would be positive, they will not change the oversupply situation we anticipate in 2015-2016.
As long as borrowing costs stay low, the government is unlikely to reverse the earlier anti-speculation measures.
With TDSR being a long-term instrument, it would dampen any speculative activity. Under this environment, we expect share price weakness to persist.
For exposure, our top pick is CapitaMalls Asia (CMA SP) for its best-in-class presence in retail malls.
Publish date: 06/01/14