reporter2
26-02-18, 19:58
Developer stocks in knee-jerk reaction to change in buyer's stamp duty
Wed, Feb 21, 2018
Lynette Khoo
DEVELOPER stocks took a hit on Tuesday in knee-jerk reaction to news that the government is raising stamp duties on home purchases costing more than S$1 million.
But most analysts see any correction as a buying opportunity as they do not expect residential transactions and prices to take a significant hit. Their selective "buy" calls on developer stocks following the Budget announcement, however, failed to stem their fall.
The FTSE Straits Times Real Estate Holding and Development Index, a weighted index tracking the sector's performance, marked a 1.7 per cent drop on Tuesday.
At closing, shares of City Developments Ltd (CDL) shed 3 per cent to S$12.51, UOL Group lost 3.3 per cent to S$8.33, Wing Tai fell 2.7 per cent to S$2.19, while CapitaLand slipped 1.9 per cent to S$3.56. Frasers Property bucked the trend with a 1.5 per cent rise to S$2.02.
The move to make taxes more progressive in Budget 2018 came in the form of a surprise hike in the top marginal buyer's stamp duty (BSD), from 3 per cent to 4 per cent. This higher rate of 4 per cent will be applied to the portion of the residential property value in excess of S$1 million.
The change takes effect on all residential properties bought on or after Tuesday, including residential en bloc and land purchases.
"While the impact on the actual market is likely to be small, a reminder of the fluidity of the policy environment could weigh on sentiment and developer stock prices in the near term," Morgan Stanley analysts said in a report.
Jefferies Singapore equity analyst Krishna Guha, who maintained "buy" ratings on Wing Tai and CDL, noted that developers' expectations on future property price increases may offset the impact of higher stamp duties in their land purchase.
"That said, we will keep an eye on take-up rates of future launches and how developers price projects," he added. "In case, developers choose to absorb the increase in stamp duty, margins will take a slight hit. For future en bloc, especially involving larger sums, developers need to factor in the hikes in their bid prices."
But other countervailing factors like rising household income, broad-based economic growth and still-low interest rates still support overall demand, Mr Guha said.
CDL has one of the largest residential landbanks in Singapore among listed developers. A spokesman said the higher BSD is unlikely to significantly affect the mass-market segment. "For luxury projects, we believe that discerning buyers will see the strong potential of property investment in Singapore compared to other global cities like Hong Kong where prices have increased significantly."
The announcement had, on the contrary, expedited the decision of some keen buyers, he added. Over the festive period from Feb 16 to 19, CDL sold a total of nine units, including six luxury units at New Futura and a penthouse at Gramercy Park.
The Business Times understands that four units at New Futura, three units at GuocoLand's luxury project Martin Modern and one unit at Reflections At Keppel Bay were sold on Monday after the Budget announcement.
There is no change in the 1 to 3 per cent BSD rate for non-residential properties, which is seen as a positive for Singapore-listed real estate investment trusts (S-Reits).
After enjoying an immediate lift on Monday from news on tax transparency treatment for exchange traded funds (ETFs) that invest in them, S-Reits succumbed to profit-taking pressures on Tuesday.
The FTSE ST Real Estate Investment Trusts Index was down 0.4 per cent on Tuesday, but still above its Thursday closing.
Market watchers expect that there will be more investor inflows for Reit ETFs, hence boosting the liquidity for underlying S-Reits, now that the tax leakage in the Reit ETF structure is addressed.
RHB Research Institute Singapore's top picks for Reits are Ascendas Reit, OUE Hospitality Trust and Manulife US Reit.
DBS remains "overweight" on the office and hospitality Reits. Senior vice-president for DBS group equity research Derek Tan noted that recent selling pressures on S-Reits came from a spike in the 10-year bond and fears over inflation. But stronger property fundamentals are now underpinning the sub-sectors of office, hotels and industrials, which will drive higher distribution growth rate.
"The increased income visibility and upside to earnings will, in our view, translate into tighter yield spreads," Mr Tan said. "Moreover, the quantum of interest rate increase (40 basis points increase in 10-year bond till 2019) is much lower than the 90 basis points increase we saw from the lows back in 2013."
Both OCBC Investment Research and Jefferies Singapore maintained "buy" calls on developers stocks but are "neutral" on S-Reits.
OCBC investment analyst Andy Wong said the "neutral" call on S-Reits is largely on valuation grounds. "Should interest rates increase faster than market expectations, we believe there may be some pressure on the share prices of S-Reits."
Wed, Feb 21, 2018
Lynette Khoo
DEVELOPER stocks took a hit on Tuesday in knee-jerk reaction to news that the government is raising stamp duties on home purchases costing more than S$1 million.
But most analysts see any correction as a buying opportunity as they do not expect residential transactions and prices to take a significant hit. Their selective "buy" calls on developer stocks following the Budget announcement, however, failed to stem their fall.
The FTSE Straits Times Real Estate Holding and Development Index, a weighted index tracking the sector's performance, marked a 1.7 per cent drop on Tuesday.
At closing, shares of City Developments Ltd (CDL) shed 3 per cent to S$12.51, UOL Group lost 3.3 per cent to S$8.33, Wing Tai fell 2.7 per cent to S$2.19, while CapitaLand slipped 1.9 per cent to S$3.56. Frasers Property bucked the trend with a 1.5 per cent rise to S$2.02.
The move to make taxes more progressive in Budget 2018 came in the form of a surprise hike in the top marginal buyer's stamp duty (BSD), from 3 per cent to 4 per cent. This higher rate of 4 per cent will be applied to the portion of the residential property value in excess of S$1 million.
The change takes effect on all residential properties bought on or after Tuesday, including residential en bloc and land purchases.
"While the impact on the actual market is likely to be small, a reminder of the fluidity of the policy environment could weigh on sentiment and developer stock prices in the near term," Morgan Stanley analysts said in a report.
Jefferies Singapore equity analyst Krishna Guha, who maintained "buy" ratings on Wing Tai and CDL, noted that developers' expectations on future property price increases may offset the impact of higher stamp duties in their land purchase.
"That said, we will keep an eye on take-up rates of future launches and how developers price projects," he added. "In case, developers choose to absorb the increase in stamp duty, margins will take a slight hit. For future en bloc, especially involving larger sums, developers need to factor in the hikes in their bid prices."
But other countervailing factors like rising household income, broad-based economic growth and still-low interest rates still support overall demand, Mr Guha said.
CDL has one of the largest residential landbanks in Singapore among listed developers. A spokesman said the higher BSD is unlikely to significantly affect the mass-market segment. "For luxury projects, we believe that discerning buyers will see the strong potential of property investment in Singapore compared to other global cities like Hong Kong where prices have increased significantly."
The announcement had, on the contrary, expedited the decision of some keen buyers, he added. Over the festive period from Feb 16 to 19, CDL sold a total of nine units, including six luxury units at New Futura and a penthouse at Gramercy Park.
The Business Times understands that four units at New Futura, three units at GuocoLand's luxury project Martin Modern and one unit at Reflections At Keppel Bay were sold on Monday after the Budget announcement.
There is no change in the 1 to 3 per cent BSD rate for non-residential properties, which is seen as a positive for Singapore-listed real estate investment trusts (S-Reits).
After enjoying an immediate lift on Monday from news on tax transparency treatment for exchange traded funds (ETFs) that invest in them, S-Reits succumbed to profit-taking pressures on Tuesday.
The FTSE ST Real Estate Investment Trusts Index was down 0.4 per cent on Tuesday, but still above its Thursday closing.
Market watchers expect that there will be more investor inflows for Reit ETFs, hence boosting the liquidity for underlying S-Reits, now that the tax leakage in the Reit ETF structure is addressed.
RHB Research Institute Singapore's top picks for Reits are Ascendas Reit, OUE Hospitality Trust and Manulife US Reit.
DBS remains "overweight" on the office and hospitality Reits. Senior vice-president for DBS group equity research Derek Tan noted that recent selling pressures on S-Reits came from a spike in the 10-year bond and fears over inflation. But stronger property fundamentals are now underpinning the sub-sectors of office, hotels and industrials, which will drive higher distribution growth rate.
"The increased income visibility and upside to earnings will, in our view, translate into tighter yield spreads," Mr Tan said. "Moreover, the quantum of interest rate increase (40 basis points increase in 10-year bond till 2019) is much lower than the 90 basis points increase we saw from the lows back in 2013."
Both OCBC Investment Research and Jefferies Singapore maintained "buy" calls on developers stocks but are "neutral" on S-Reits.
OCBC investment analyst Andy Wong said the "neutral" call on S-Reits is largely on valuation grounds. "Should interest rates increase faster than market expectations, we believe there may be some pressure on the share prices of S-Reits."