Singapore Government Property Measures – negative in the near term, positive over mid- to long-term

The Singapore government announced the following measures to ensure a stable and sustainable property market:

a) Reinstatement of the confirmed list sites and replenishment of the reserve list sites for the 1H10 government land sales programme (GLS).

b) Removal of the Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL) with effect from 14 Sep 09, except for projects where the units have already been offered for sale under IAS prior to 14 Sep 09.

c) Non-extension of the Jan 09 Budget assistance measures for the property market upon expiration.

Pre-emptive demand side measure to support stable and sustainable recovery. While the supply side initiatives as part of the GLS programme and the withdrawal of the budget assistance measures were largely anticipated, the demand side measure on the removal of IAS has been introduced sooner than anticipated. Even though the level of speculation as measured by the subsales as a percentage of total sales at 10.9% is not excessive, we believe that the government has decided to preemptively introduce the demand side measure earlier taking cues from the previous property boom when the supply side initiatives had been less effective in curbing speculation compared to the demand side measure on the removal of the deferred payment scheme (DPS).

We believe that the intention of the government’s latest measures is to support a stable and sustainable recovery in the property market and the authorities would refrain from draconian measures that would destabilise the sector. The strong rebound in the property sector ahead of the recovery in the economy has led the government to undertake preemptive measures to stabilize the sector and curb speculative bubbles from building up.

Channel checks indicate low direct impact from removal of IAS scheme but expect property market sentiments to dampen in the near term. The IAS scheme is much less susceptible to speculation compared with the DPS scheme (scrapped in Oct 07) as the banks are involved right from the beginning in the sales process, ensuring that the loans are extended only to creditworthy buyers.

Based on our discussions with the developers, the units sold under the IAS scheme account for 20-30% of the total units sold with the lower end of the range in the mass market segment. Our channel checks also indicated that the proportion of the units sold under the IAS has been declining as developers charge a higher premium for such sales. This is indicative of a rise in genuine demand. However, it is the anticipation of other potential demand side measures that is expected to dampen the property market sentiment. These could include measures such as higher cash downpayment requirements and lower loan-to-value for second property purchases.

Underlying demand-supply dynamics remain favourable. The supply of the Housing and Development Board (HDB) flats has fallen to below 10,000 units p.a. since 2003, a far cry from the supply of 36,000 new HDB homes in 1998. The tight supply in the public housing segment, which accounts for 78% of the total housing stock and the segment's narrow price differential with the private mass market segment support the overall private residential market. Also, we forecast that the average demand of around 6,500 units in the mass-market and mid-tier segments over the next three years is expected to outpace the supply. The private mass market and mid-tier segments constitute nearly 80% of the private housing market.

While the risk of other potential demand side measures by the government will have a negative near-term impact, dampening the pace of recovery, we remain positive over the mid- to long-term prospects as the current recovery in the property market has been supported by the strong underlying demandsupply dynamics, low interest rate environment and high liquidity flows that are expected to remain favourable.

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There the fierce bidding goes again on Government Land Sales

Fierce bidding increases possibility of Confirmed List re-instatement, maintain OVERWEIGHT. The overwhelming 13 bids received for the Dakota Crescent site suggests that developers’ inventories are in dire need of replenishment after strong sales YTD. We believe this also reflects a sustainable sales momentum for mass and mid projects. Looking ahead, we expect the two already-triggered GLS sites (Yio Chu Kang and Serangoon) to draw similar demand, especially from developers who missed out during the past two tenders. More importantly, we believe this has all but confirmed the re-instatement of the Confirmed List next year. We reiterate our inclination towards landbank-rich developers who will be sheltered from overpaying for land given their adequate inventory at present to ride on the residential sales momentum. Amongst the big-cap developers, we like CityDev, while Wing Tai is our preferred proxy to the mid-cap space.

UOL emerged as the highest bidder for the GLS site along Dakota Crescent. While its bid of S$508 psf is within our estimates of S$450 – 500 psf, we note that this is almost close to the S$524 psf which Ho Bee and NTUC Choice Homes paid for a nearby site in Jun 07 (property peaked in 4Q07). The 185,000 sf site (GFA of 650,000 sf) could yield 550 units. We estimate a breakeven price of S$910 psf and selling prices of S$1,000 – 1,100, implying PBT margins of 10 – 20%. While this price range represents a premium over nearby Dakota Residences’ current S$850 – 950 psf, we reckon developers are attracted by: (1) proximity to upcoming Singapore Sports Hub, Marina Bay IR and CBD, as well as (2) accessibility through Dakota MRT Station in 2010. Further, we note that this is the only pure residential site on URA’s reserved list which is located close to the IR.

Competition was intense with 13 bidders, six of which missed out on the previous awarded site along Chestnut Avenue, i.e. Allgreen, F & N, Ho Bee and Sim Lian. More notably, bid prices were evidently more aggressive, with seven developers bidding at least twice the minimum bid as compared to Chestnut Avenue’s two. We attribute this largely to their fast-diminishing landbank, as well as knowledge of the high level of competition for land at present. Meanwhile, this could re-invigorate buying interest in nearby 348-unit Dakota Residences.


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Singapore Property Sector - A Positive Message

National Development Minister Mah Bow Tan said there was “every likelihood” the government would reintroduce the confirmed list of land sites that was suspended last October. The question, as the Minister put it is: “how much to put on the list”.

This is the only logical and systematic thing one would expect this government to do after the hectic home sales since February, exceeding 1000 units a month.

What’s important is the positive “message” from the Minister. Our take on the subject:

- if the intention is merely to satisfy the strong demand, the government could easily transfer sites from the reserved (triggered only if developers commit to bid) to the confirmed list.

- The fact that the confirmed list is the option chosen is likely to reflect the government’s view that demand is sustainable.

It is also worth noting the Minister’s confidence in HDB resale prices continuing to rise. This is really surprising considering how the HDB has for years now, got a grip over the supply of public housing, with schemes like Build- To-Order”.


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