More government cooling measures caused by the en-bloc fever

Singapore property prices reit dividend yields

The following post by DBS’s research team.

In summary, their views are that

  1. The government cooling measures are here to stay
  2. There may be a possible increase in supply for 1H2018 Government Land Sales supply
  3. The government may target developers by requiring them to put more equity i.e. take a smaller loan amount

URA is reportedly requesting en-bloc tender details from Collective Sales Agencies.

  • According to the Business Times, the Urban Redevelopment Authority (URA) is seeking detailed information on the tender results of private-sector en bloc sales from marketing agents, including the names of all bidders and their bid prices.
  • Consultants and market watchers view is that URA is possibly gathering information with which to formulate the Government Land Sales (GLS) Programme for the first half of next year.
  • The authorities could be keeping tabs on the heating en bloc sales sector, with a view to imposing cooling measures if the market spirals out of control.
  • It is noted that based on the current approximate 3,000 units sold en-bloc; close to 11,000-12,000 new units will emerge come 2019 onwards ( a multiple of close to 4x in this cycle). This is more than then 2x multiple we saw in the last en-bloc cycle in 2006-2008.

Our Thoughts.

  • In our view, the authorities are possibly trying to understand the rationale behind the insatiable appetite from developers to landbank despite the recent hikes to the development charges (DC) charges and if there are more “un-fulfilled demand” waiting in the wings.
  • The authorities are also possibly looking for signs if foreign capital are looking for alternative avenues to enter the real estate market which is seeing strong momentum in collective sales in recent times, which could possibly fuel a unwanted “bubble” in land prices if it continue to rise.
  • A key concern among analysts is that the rise in private residential land prices being paid by land-starved developers will translate into higher launch prices for the new projects on these sites in future.

Our thoughts on any potential government intervention?

  • Measures are here to stay. A key question asked amongst investors recently, we believe that the authorities are unlikely to tweak any macro-prudential measures (i.e. ABSD, SSD, TDSR) at this point given that buyers have appeared back in strong volumes despite measures being put in place.
  • Possible hikes in the GLS in 1H18. We believe that the government could potentially look to introduce more supply come 1H18 ( more from the reserve list) in order to create more alternatives for developers to land-bank. This will be in effective mechanism, in our view to cool the current feverish appetite amongst developers to land-bank in the en-bloc market.
  • Will the authorities start to target lenders? Another way could also be to further limit the loan quantum that banks can provide to developers. Based on anecdotal evidences, average LTVs range between 60%-70% for land and could potentially be higher of up to 80% for “exceptional cases”. By requiring developers to put down more equity in the projects could also result in developers re-look their IRR assumptions and turn more cautious in their bidding.

This article was first published by DBS Research.