BT : Anti-speculation moves dent property counters

Business Times - 23 Feb 2010

Anti-speculation moves dent property counters

Capital gains tax could be next, says RBS, since govt keen to avoid bubble

By OH BOON PING

(SINGAPORE) Singapore property counters took a hit yesterday, after the government's latest moves to quell speculation.

CapitaLand lost 14 cents to $3.76, City Developments fell 52 cents to $10.30, and Keppel Land slipped 7 cents to $3.30.

The falls came after the government last week introduced a seller's stamp duty (SSD) on all residential land and property bought after Feb 19 and sold within a year, and cut the loan-to- value (LTV) limit for all private housing loans to 80 per cent, from 90 per cent.

Citi economist Kit Wei Zheng believes the impact of the lower LTV ratio will be limited, since fewer than 10 per cent of housing loans are granted at an LTV of more than 80 per cent.

And the SSD, designed to discourage the marginal would-be speculators, 'is clearly less drastic than similar measures implemented in 1996, when the minimum holding period was three years', he said.

'One can also argue that the seller stamp duty rate - 3 per cent minus $5,400 - is not large enough to act as a serious deterrent at this stage.'

Still, Citi considers the moves prudent, since high sales in prime districts 'raise the possibility that buyers of such units could be highly-leveraged middle income households buying for investment or speculative purposes, rather than genuine first-time home buyers'.

'Although households have been deleveraging since 2003, the recent surge in property transactions and mortgage lending would probably be of concern to regulators,' Citi says.

'Thus, it is not just from a political but also prudential perspective that the government may have decided to act quickly in the latest episode.'

Royal Bank of Scotland (RBS) thinks property gains tax could be next, as the government has stated that more measures will be implemented if necessary to prevent a property bubble.

These tools include tweaking credit rules, and land supply and tax policies in extreme cases.

'Given that supply and credit rules have been tweaked, we believe property gains tax is next, albeit at rates lower than implemented in 1996. This is because the government hopes to introduce calibrated measures to avoid a crash in the property market.'

DMG believes the fundamentals and outlook for Singapore property remain healthy, especially in the high-end segment.

'Our mid-cap and small-cap top picks within the overweight property sector remain Wing Tai and SC Global respectively,' it says.

On the economics front, Citi feels the first quarter was mixed, with disappointing non-oil domestic exports (NODX) and a continued recovery in services coupled with official caution over the second-half outlook.

Indicators to look out for include NODX and industrial production momentum, tourism activity (especially from the opening of the integrated resorts), and wage and imported inflation pressures.

Citi also feels the Singapore dollar may have limited room to appreciate, given the US dollar's strength, even though an unwinding of short euro positions could drive the euro up in the near term, in turn allowing the Sing dollar to strengthen in a similar time frame.

'At the same time, the pressure for MAS to tighten in April has likely eased, though we would still expect it to tighten by October at the latest,' it says.

'In any case, any downward pressure on US$-S$ from MAS tightening would probably be limited, given the S$ net effective exchange rate (NEER) is already at the strong side of the policy band, while a change in slope allows for only incremental gains in the S$ NEER in the near term.'

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