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Selling pressure on S'pore property shares could persist

SINGAPORE: The selling pressure on property shares could persist in the near term after the Singapore government announced on Monday that certain property measures would be undertaken to ensure a sustainable property market.

According to a CIMB-GK Research report on Sept 15, it anticipated values to re-emerge from the measures. Property shares fell by 6%-11% on Monday after the measures were announced.

"We retain our positive views on City Developments and Ho Bee with unchanged target prices of S$11.76 (20% premium to realised net asset value or RNAV) and S$1.59 (parity to RNAV) respectively," it said.

CIMB-GK Research said CityDev had been very aggressive in the past year in pushing out property launches to very favourable take-up rates.

It expected the forward cash flows to remain solid. Impending launches in 2H09 such as the Hong Leong Garden site and The Quayside Isle at Sentosa Cove also targeted the genuine upgrader and niche market respectively.

As for Ho Bee, it said the share price performance was tied to a potential re-rating of Sentosa and this segment was largely unaffected by the removal of Interest Absorption Scheme (IAS).

The research house also said Keppel Land, with a larger exposure to Singapore offices than residential properties, should also be less affected by this news.

"We retain our Neutral position on the sector simply because of our negative view on heavily weighted CapLand, as we anticipate some resistance in take-up rates for its up-coming launches such as The Interlace and Farrer Court given the massive scale of these projects," it said.

On Monday, Singapore's National Development Minister Mah Bow Tan said certain property measures will be undertaken to ensure a sustainable property market.

 Among the three measures were:

1)    Releasing more land by reinstating the confirmed list of the government land sales (GLS) programme from the first half of 2010;
2)    Non-extension of the January 2009 budget assistance property measures when they expire and;
3)     The abolition of the IAS  and interest only housing lans with immediate effect for properties still uncompleted. This measure was applicable only to new uncompleted projects. The IAS will still be allowed for launched developments.

However, CIMB-GK  Research said the announcement did not come as a surprise, as the government had earlier hinted at its discomfort with rising speculation in the sector.

It said the reinstatement of the confirmed list in 1H 2010 and non-extension of the January 2009 budget assistance had been touched on by the government and should be non-events.

"The removal of the IAS is the main focus in this set of cooling measures. We believe the move is a pre-emptive strike at the formation of any property bubble given that banks have become more aggressive in offering mortgages of late," it said.

CIMB-GK Research while the abolition of the IAS would have a negative impact on demand and sentiment, we believe the impact will not be as severe as that of the removal of the Deferred Payment Scheme (DPS) two years ago.

"This is because while there has been some rise in property speculation, the magnitude appears much lower than in 2007," it pointed out.

While the IAS was similar to the DPS, there was one fundamental difference. A buyer would need to secure a bank loan at the point of purchase, from a bank chosen by the developer. This means that the credit profile of the buyer will already have been screened by the banks.

The buyer who opts to resell his or her property before completion will need to pay a penalty to cancel the loan, typically at 5% of the loan quantum. These factors essentially make it harder for speculators to operate in this cycle compared with 2007 under the DPS.
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