Too soon to sell, maintain OVERWEIGHT on the property sector. Minister Mah Bow Tan’s comments on the presence of speculative signs in the property sector indicate that the Government is increasingly concerned over the buoyant property market. If the Government acts, we believe the Minister’s comments suggest a change from demand-oriented to supply-oriented anti-speculative measures, similar to the 1990s, which would be less negative for the market. Subsequent to a proposed tax amendment a few weeks ago, property counters fell 3% over 1 day, while property stocks eased 4% when a slew of anti-speculative measures were announced in May 96. We are cautious, but are maintaining our OVERWEIGHT call on the property sector, with CityDev (S$9.94 TP: S$12.00) as top pick given its broad-based residential portfolio.

Speculative signs present, but not excessive. During MBFC’s topping out ceremony yesterday, National Development Minister Mah Bow Tan stated that the government is seeing speculative signs in the property market. Nonetheless, they are not excessive and it is a little too early to conclude that a property bubble is building up. In any case, the situation is being monitored closely to ensure that a property bubble does not build up. He further assured that there is plenty of supply in the pipeline and the suspended government land sales (GLS) program could be brought back if necessary. Citing the uncertain economic outlook, he urged homebuyers to do their homework to ensure their properties are affordable, even if interest rates begin rising. Government is increasingly concerned. Following its proposed income tax amendment on 8 Jul 09, we believe that Mah’s comments provide further evidence that the government is becoming increasingly concerned over the buoyant property market. We reckon this is a result of: (1) massive take-up of 2-bedders for all new projects, (2) overnight queues and blank cheques for choice units and (3) primary launch prices at significant premiums to nearby completed projects, even for mass projects.

A switch from demand-oriented to supply-oriented measure(s). Recent developments could signal a change in the nature of any possible anti-speculative measures - from demand-oriented to supply-oriented. This is not illogical, as the GLS program essentially revolves around mass and mid projects, where most of the buying activity is at the moment. A supply-oriented measure should help to stabilize prices and not dampen the current sustainable and genuine demand, which is evidenced by seven consecutive months of strong sales and recent triggers of two mass market sites on the GLS program. We believe this is more appropriate at a time when the economy and property sector have just started to recover. A demand-oriented move, on the other hand, is more far-reaching and damaging, from our view, and should only be implemented when speculation is excessive. With prices of prime and luxury projects still 20 – 30% off their 4Q07’s peaks, this is unlikely.

What could really happen? A repeat of 1990s? By our estimates, new launches for mass projects are now fetching prices above 4Q07’s peak in terms of S$psf basis. While absolute quantum remains within a comfortable range of < S$900k, price sensitive buyers here could be deterred by further hikes. As such, we guess that the government’s ultimate policy (if any) could focus on mass projects remaining affordable to genuine owner-occupying buyers. As such, this could imply similarities to the 1990s where the GLS program was stepped up – Jul 92’s announcement (sell 11 sites yielding 3,000 units between Jun 92 and Jan 93) and May 96’s announcement (land for 7,000 – 8,000 units to be released in 1997). Removal of IAS is unlikely given the increasing preference of buyers for NPS due to its slight 2 – 5% discount over the former.