Singapore’s property market has made headlines in recent months with the prices of resale HDB flats rising for the 26th straight month in August.
In particular, flash data from the Urban Redevelopment Authority also saw private home prices rising by 3.4% in the third quarter of 2022 compared to the previous quarter.
Given the circumstances, it was unsurprising to learn that the government had imposed yet another round of property cooling measures to take the fizz out of the market.
The government is rightfully concerned that rising interest rates may crimp borrowers’ ability to service their mortgages and lead to financial stress.
The last round of cooling measures was implemented back in December last year with the aim of cooling the red-hot property market.
This raft of measures has implications for three stocks that rely on a buoyant property market to help their business to grow.
We look at the implications for these three businesses and the sector they are in.
Property Development: City Developments Limited (SGX: C09)
City Developments Limited, or CDL, is a real estate development and investment group with a geographically-diverse portfolio of properties that covers residential, offices, retail, and hospitality.
In particular, the real estate giant has close to half of its total assets in property development as of the first half of 2022 (1H2022).
The new measures seek to encourage prudence by assuming a higher interest rate used to compute the loan quantum for borrowers.
Private property owners also need to wait for 15 months after selling their properties before being allowed to purchase an HDB resale flat.
Both measures will crimp demand for new private residential properties as homeowners will now hold back from selling their properties in light of these new rules.
On this note, CDL has a launch pipeline of more than 2,000 units that stretches from the fourth quarter of 2022 through the first half of next year.
In light of the new measures, the group may slow down the launch of the new units as demand is expected to taper off.
Another player that will be affected is Frasers Property Limited (SGX: TQ5) with its two remaining residential projects that have sold an average of close to 80%.
Singapore Banks: DBS Group (SGX: D05)
With an expected slowdown in real estate transaction volumes, the local banks will also be impacted.
DBS is Singapore’s largest lender and housing loans make up around 18.3% of its total gross loans as of 30 June 2022.
As higher rates will be used to assess borrowers’ loan servicing capabilities, they will likely be granted a lower loan quantum to ensure they can keep up with their loan payments.
DBS may see its mortgage loan book grow more slowly due to this factor, and could negatively impact its overall loan growth moving forward.
Before the new cooling measures, many HDB resale owners were selling their flats to book healthy profits to trade up to a condominium, but these plans will probably be put on hold as demand dries up due to the 15-month waiting period.
Similarly, private property owners will also take a wait-and-see approach as many had been monetising their condominiums by selling them and downgrading to HDB flats.
Both these moves will lower demand for loans and affect not just DBS, but also OCBC Ltd (SGX: O39) and United Overseas Bank Ltd (SGX: U11).
Property Brokerages: PropNex Limited (SGX: OYY)
As discussed above, the cooling measures will almost surely lead to a drop in property sales volume as more people stand on the sidelines to figure out their next move.
Property brokerage firm PropNex, which thrives on higher transaction volumes, will be negatively impacted by these changes.
PropNex, along with peer APAC Realty Limited (SGX: CLN), had already felt the chill from the property measures imposed in December 2021.
Already, PropNex has seen transaction volumes soften in 1H2022 as buyers held back on property purchases, causing revenue to dip by 1.8% year on year and net profit to fall by 17.7% year on year.
Meanwhile, APAC Realty also saw a lower volume of property transactions in 1H2022 which led to a 4.4% decline in revenue and a 2.8% year on year decrease in net profit.
Both companies can expect lower volumes in the coming months which will further depress their revenue and net profit.
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Disclaimer: Royston Yang owns shares of DBS Group.
