Curb on enthusiasm: Singapore property measures hit developers, investors

Oxley Holdings

06/07/2018 13:04

* Measures to dampen demand from home buyers
    * Developers' land acquisition push likely to be hit
    * Developers' stocks bear the brunt, drag down overall
market

    By Aradhana Aravindan
    SINGAPORE, July 6 (Reuters) - Singapore's surprise move to
intensify property curbs marks the strongest cooling measures in
the island nation in five years, putting a damper on a nascent
resurgence in the housing market and posing risks to developers'
margins.
    After nearly four years of price declines, home prices in
Singapore rose by 9.1 percent over the past year, while
developers have been paying record amounts to buy land.
    Warnings from the authorities against what one official
called "excessive exuberance" in the market have mostly fallen
on deaf ears, prompting government action on Thursday night.
    The government slapped an additional five percentage points
stamp duty on property purchases for individual home buyers and
tightened housing loans limits. Only first-time buyers who are
Singaporeans or permanent residents were exempt from the
increase. Properties bought by entities will have to pay an
additional 10 percentage points.
    The government also introduced an extra 5 percent
acquisition tax on developers buying land to build residential
properties.  urn:newsml:reuters.com:*:nL4N1U13VB
    The shock move hit stocks of property developers on Friday
and the overall market closed two percent down at a 14-month
low.
    City Developments  CTDM.SI  plunged 15.6 percent, while
Oxley Holdings  OXHL.SI  slumped 15.85 percent.
    "If the demand is not strong ... as it was over the last
year, that will translate to weaker prices, hitting developers'
margins," said Joel Ng, an analyst with KGI Securities. "A lot
of developers had bought land at high prices expecting property
prices to rise with demand."
    Last-minute buyers rushed on Thursday to sign contracts for
flats before the new rules kicked in at midnight. The sales
launch for some projects such as Oxley Holdings' joint venture
Riverfront Residences project was brought forward by two days,
following the government's announcement.
   Local newspapers ran photos of long queues of potential home
buyers lining up at showrooms of newly built condominiums to
avoid the hikes in taxes.
   
    "EN BLOC" INVESTMENTS
    Oxley and City Developments are among real estate firms that
have spent billions of dollars building up landbanks over the
last two years through government sales or in so-called "en
bloc" or collective redevelopment sales, a feature of
Singapore's property market.  urn:newsml:reuters.com:*:nL3N1QX1TD
    DBS Equity Research analysts said demand for en bloc sites
could "grind to a halt" due to the fresh cooling measures.
    Among its measures on Thursday, the government tightened the
loan-to-value (LTV) limits, which will be tightened by 5
percentage points for all housing loans. 
    Analysts said developers are unlikely to cut selling prices
immediately. However, prices may be hit at a later stage when
transaction volumes start dwindling and companies come under
pressure to clear their unsold inventories.
    "Margins will definitely be compressed, if developers take
taking haircuts just to move volumes," said Desmond Sim, head of
research, Singapore and Southeast Asia, at real estate
consultancy CBRE. 
    Developers are subject to a rule in Singapore, which
requires them to sell all units in a project within a five-year
deadline or be liable to pay stamp duties on the land price.
    CBRE estimates developers have spent S$31 billion acquiring
land over the last two years, which will yield about 
30,000-35,000 homes.
    "We are expecting a big conundrum of a huge supply coming in
and demand taking a haircut," said CBRE's Sim.
    ($1 = 1.3642 Singapore dollars)

 (Reporting by Aradhana Aravindan
Editing by Jack Kim and Raju Gopalakrishnan)
 ((aradhana.aravindan@thomsonreuters.com; +65 6403 5659; Reuters
Messaging: aradhana.aravindan.thomsonreuters.com@reuters.net))