City Developments to be badly hit by property cooling measures

A depressing buyer demand looms.

OCBC Investment Research believes that City Developments would be unfavorably affected by the most comprehensive set of property cooling measures implemented by Singapore authorities since Sep 2009.

Here's more from OCBC:

The latest private residential curbs, consisting of more ABSDs, tighter LTVs and higher cash downpayments, are amongst the most onerous seen thus far, and would likely crimp residential buyer demand significantly.

New ABSDs to affect large cross-section of buyers
While the previous ABSD measures were targeted mostly at foreign buyers, the latest measures now impact a significantly larger cross-section of buyers, with citizens buying their first property being the only group of buyers unscathed.

From URA caveat data over 2012, we note that the breakdown of buyers by residential status over that period is: 77% citizens, 16% PRs and 6% foreigners. Assuming that roughly 30%-50% of citizen purchases are by first time buyers, we estimate that around 60%-75% of the buyer population would be hit by these incremental buyer stamp duties.

Political will to soften residential prices
Pertinently, we note that Deputy Prime Minister Tharman Shanmugaratnam stated in an interview to the media that the government has “assessed that prices have run too far” and that “some softening will not be a bad idea.”

In our view, this is the first time that authorities have indicated, in their language to media, their desire for property prices to correct ahead, though Minister Tharman also qualified that they “don’t intend to engineer a market crash.” 

Though CDL management continues to execute well on its residential strategy, we expect headwinds for the group ahead as these curbs affect demand fundamentals meaningfully.