Published October 09, 2012

Bank, property stocks take it on the chin

Developers sanguine about mortgage curbs, consultants see more tightening ahead

By Mindy Tan

[SINGAPORE] Bank and property stocks fell yesterday as the market weighed the possibility - following last week's mortgage curbs - that the government was prepared to step in with more measures to check property prices.

Developers were largely sanguine about the potential impact such measures would have on sales but consultants saw more tightening ahead.

"The new cap on the loan tenure announced last Friday is unlikely to have any significant impact on the property market in the long run if there's liquidity and interest rates remain low," said Wong Heang Fine, chief executive at CapitaLand Residential Singapore.

Keppel Land too held the view that "well located properties with good attributes" should continue to see healthy sales given that there is still "genuine demand" for homes.

Said a Hong Leong Group spokesman: "As these measures have just been released, the market will take time to absorb the news and we will assess the situation accordingly."

Hong Leong's Bartley Residences sold a total of 20 units over the weekend, while the previous weekend saw 14 units sold.

Property watchers largely agreed that the latest measures - which saw residential property loans capped at 35 years and loan-to-value (LTV) ratios tightened - are mostly preventive rather than punitive in nature.

This is due to other key liquidity drivers, such as low forward rates, easy loan access and healthy system liquidity, which are likely to continue to be conducive for housing demand, said OCBC Investment Research analyst Eli Lee.

While the impact of the latest measures on demand may be mild, the government's pledge to keep prices down signals further policy headwinds for developers, said CIMB analyst Donald Chua.

UOB economist Alvin Liew stressed that further measures cannot be ruled out until prices achieve greater stability.

Even though supply of both public and private housing has been ramped up, it will take a while for these homes to come onstream. If prices continue to face upside pressure, the risk of more measures being introduced remains, Mr Liew said.

Indeed, the government has shown itself to be willing to act quickly, said Ong Teck Hui, Jones Lang LaSalle national director of research and consultancy, noting that the latest measures came out shortly after the release of flash estimates that indicated prices were firming up again.

"The government has demonstrated that it is determined to keep prices in check and can be expected to be pre-emptive in doing so," he said.

Specifically, the next round of policy measures might be targeted at addressing low interest rates, said Standard Chartered analyst Regina Lim.

"Measures (introduced) could have more bite if they effectively reduce the spread between the average net rental yield and mortgage rate, which has widened to 200 basis points (bps) currently from zero in 2006. We estimate that the average net residential rental yield in Q2 2012 to be 2.5-3.5 per cent, while the average residential mortgage rate has fallen to circa one per cent currently," she said.

That said, measures targeting the residential sector, if introduced, are unlikely to be seen in the immediate term, said Lee Sze Teck, DWG senior manager of training, research and consultancy. Rather, policies targeting the non-residential sectors may be introduced as money flows into those sectors, he said.

Specifically, investors with ample funds are expected to continue to look to alternative investment avenues including the office, retail and industrial sectors as they are unaffected by the measures imposed on the residential market, said Chia Siew Chuin, Colliers International director of research and advisory.

Chua Chor Hoon, DTZ head of Asia-Pacific research, said: "I won't rule out measures for the non-residential sector, especially for the industrial sector. This could be in the form of LTV and seller's stamp duty to weed out speculators who flip within a short period of time."

A possible way forward would be for the introduction of inflation-linked bonds as an alternative investment vehicle, said Colin Tan, Chesterton Suntec International director of research and consultancy.

"As long as interest rates remain low, there will be money floating around. And when other assets - for example, gold - have gone up, people will come back to property. The problem lies in a lack of alternative investments."

Meanwhile, property counters fell in trading yesterday. Luxury developer SC Global lost six cents (or 4.9 per cent) to end the day at $1.175. Wheelock Properties lost 2.5 cents (1.3 per cent) to close at $1.84.

The benchmark Straits Times Index (STI) too saw a drop of 31.22 points to finish at 3,076.65, weighed down by property developers.

CapitaLand was the worst performer on the STI, falling 11 cents (3.3 per cent) to $3.19. City Developments Ltd fell 28 cents (2.3 per cent) to end trading at $11.67.

Bank counters fell too. DBS dropped 21 cents (1.5 per cent) to end trading at $14.25, followed by UOB which fell 26 cents (1.3 per cent) to $19.58. OCBC saw the smallest dip, percentage-wise, falling four cents, or 0.4 per cent, to $9.45.

Assuming that residential sales do weaken, it could lead to slower mortgage growth with a lag effect of two or more years, said DMG & Partners Research banking analyst Leng Seng Choon.

"Banks that recorded stronger housing loan growth over the past two years are in a better position to keep their customers without having to be aggressive in their interest rates. As both OCBC and UOB recorded two-year housing loan CAGR of 19 per cent - more than double DBS's 8 per cent - we see this new ruling to benefit OCBC and UOB more."