Singapore Property Developers & Investors Dealt Another Blow....

The Singapore government aims to take the heat off property market by introducing yet another tightening measure: additional buyers’ stamp duty (ABSD) in 8 Dec 2011. This is in addition to the Jan 11 cooling measures and is deemed harsher as it directly affects buyers’ investment margins and developers’ ability to price. The prices of luxury properties will correct at least 20% latest by next year, coinciding with the slowdown in global economy, while the demand for mass-market units shall remain steady

According to statistics, foreigners made up 19% of private home sales in 2H11 and 36% of new units sold YTD. A foreigner will now need to pay 13% more for a property while investors must be prepared to pay 6% more, with the introduction of ABSD. In addition, PRs buying their second and subsequent properties will have to pay an ABSD of 3% (6%), while Singaporeans buying their third and subsequent residential properties will also pay an ABSD of 3% (6%). First-time Singaporean private home buyers and buyers of HDB flats will not be affected.

Investors shall underweight property counters for the time being and continue to buy REITs for its dividends and defensive in nature. Meanwhile, CityDev is highlighted as the top underperform by most brokerage houses.

More Downside To Singapore Developer Stocks - Morgan Stanley

For investors who are looking to buy into any property or property stocks might want to think twice now. According to Morgan Stanley, there is as much as 25% downside to Singapore developers' stocks, based on its view that residential prices will correct 20% over the next two years. They suggest that the property sector will only improve toward end of 2012.

The concerns over residential include slower GDP and population growth leading to supply imbalance, and has a bear case of a 40% drop in prices. It says developers are trading at around 20% discount to RNAV and still a far cry from its historical trough at around 60%.

They do not expect a draconian discount during this cycle as balance sheets are stronger, and bank system liquidity as well as end-user affordability is high. However, it says continued fears over global macro and downside risks to Singapore property prices could mean that the stocks could trade down to a 40% discount.

Though it is in our view that Singapore HDB and resale market should be quite resilient to any slowdown in economy, existing private home-owners should brace themselves for any fall in prices and rental income. Investors who want exposure to the sector can consider REIT which is defensive in nature and pays dividends regularly.