Last Thursday, the Singapore government made a surprise announcement that it is increasing the buyer stamp duty for private properties and tightening the loan-to-value limits. This comes as private property prices have risen to a four-year high after a frenzy of collective sales.
These new regulations will not only affect property prices, but have also impact on some companies listed on the stock market. Here’s a quick list of stocks represented in the Straits Times Index (SGX: ^STI) that might be affected.
Perhaps the biggest hit will be the property stocks that have residential development projects in Singapore. The new regulations will affect demand for residential property in Singapore and in turn, affect prices. Already, property developers have been courting home buyers with additional discounts or rebates over the weekend.
The three property stocks that are part of the Straits Times Index – City Developments Limited (SGX: C09), UOL Group Limited (SGX: U14) and CapitaLand Limited (SGX: C31) – nose-dived between 5% and 16% on Friday when news of the new cooling measures hit the market.
The lower demand for property in Singapore will also affect banks as fewer property transactions mean lower loan volume.
Banks have enjoyed loan growth in the last few quarters, partly due to the buoyant home loan market. However, should property demand decrease, the loan volume growth will likewise decelerate.
The tightening of the loan-to-value ratio limit will also have an immediate negative impact on banks as now property buyers can only take a loan worth 75% of the property value, down from 80%.
On Friday, the three banks in the Straits Times Index – DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11) and Oversea-Chinese Banking Corp Limited (SGX: O39) – fell 2.6%, 3.1% and 2.3%, respectively.
Companies with exposure to property development
Besides the three property stocks, Keppel Corporation Limited (SGX: BN4), which has a property development arm, was also affected by Friday’s market rout. Shares in Keppel Corp fell 6% that day.
Keppel Corp’s property arm has three upcoming residential projects – Serangoon North Ave 1, Keppel Bay Plot 4 and Keppel Bay Plot 6 – which have an estimated total of nearly 1,000 residential units.
The Foolish bottom line
New regulations can have a very real impact on companies and their profitability. The sudden change in regulations will most likely affect property demand and have a trickle-down effect on the companies mentioned. However, the extent of the impact is difficult to quantify. Only time will tell how much impact the regulations will have on the firms’ earnings.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on DBS Group Holdings Ltd and United Overseas Bank Ltd. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings Ltd and Keppel Corporation Limited.