Why Have Blue-Chip Property Developer Stocks Fallen Drastically Today?

As at the time of writing, the Straits Times Index (SGX: ^STI) has tumbled 2.2%, or 72.6 points, to 3,1841.

However, the property developers in the index, such as City Developments Limited (SGX: C09), UOL Group Limited (SGX: U14) and CapitaLand Limited (SGX: C31) have taken a bigger beating. Those shares are down from 5% to 17%.

Ok, What Happened?  

Yesterday, the Singapore government announced that it is raising the Additional Buyer’s Stamp Duty (ABSD) rates and tightening the Loan-to-Value (LTV) limits for residential property purchases.

In its statement, the Singapore government said that private residential prices have “increased sharply by 9.1% over the past year” and warned that the “sharp increase in prices, if left unchecked, could run ahead of economic fundamentals and raise the risk of a destabilising correction later, especially with rising interest rates and the strong pipeline of housing supply”.

The measures come hot on the heels of private residential prices rising since the 2017 third-quarter, after 15 straight quarters of declines.

According to latest estimates by the Urban Redevelopment Authority released on Monday, the price index for private residential property rose by 3.4% in the second quarter this year, following a 3.9% rise in the first quarter. The latest increase marked the property price index’s highest level in four years.

Ok, Now What? 

As my Foolish colleague, Chin Hui Leong, rightly pointed out in his article here, “investors should get comfortable with market corrections as it is likely to happen again in the future”.

Stocks are volatile. From 1993 to 2017, there were a total of 6,411 trading days, and the Straits Times Index more than doubled, without dividends. In that timeframe, there were 870 days when the index lost 1% or more, 242 days with a loss of more than 2%, and 90 days when the daily decline exceeded 3%.

As you can see, the stock market has thrown a tantrum from time to time.

In times of fear, investors should take a step back and assess the situation before doing anything drastic to their portfolio.

Yes, demand for private properties may slow down in the meantime, and the listed property developers may get hit with lower earnings, but investors should ascertain if the fall in stock prices are warranted. If the stocks have fallen more than the economic value of the business, it might be an opportunity to buy more of those companies.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.