Real Estate Stocks Hurt After End Of Payment Plan

Source : The Straits Times, Oct 30, 2007

THE axing of the deferred payment scheme for homebuyers hit home with a vengeance yesterday when property shares dived while the rest of the market soared.

The big guns felt the most pain. City Developments fell 50 cents, or 3.1 per cent, to $15.80. Allgreen Properties was down nine cents, or 5.1 per cent, to $1.69, while Wing Tai Holdings lost 18 cents, or 5 per cent, to $3.44.

Their operations are more centred on the local market, and so they seem to be more vulnerable to a change in financing conditions.

By contrast, CapitaLand, which has extensive overseas operations, rose five cents to $8.10 after falling 20 cents initially.

Analysts remain confident that the selldown was just a knee-jerk reaction to the Government's surprise move on Friday night. It scrapped the deferred payment scheme, requiring buyers of uncompleted homes to make progressive payments rather than letting them delay the bulk of their payments.

Citigroup analyst Wendy Koh said this will likely affect only a small group of HDB upgraders who cannot afford two mortgages.

It should not affect first-time homebuyers whose 'affordability remains strong', she added.

Ms Koh also noted that the run-up in the residential property market is well-supported by strong fundamentals. These include high economic growth, rising rental rates, and a tight supply of new properties coming onto the market.

However, DBS Vickers said that removing deferred payment would dampen home sales as potential buyers might have seen the scheme as a way to come out with a smaller initial outlay in capital.

It also believed the move will curb speculative buying on high-end properties.

Equally bearish is CIMB-GK, which said yesterday that selling prices may fall by 10 to 15 per cent as the speculative froth is removed.

And the worst hit may be the mass market where buyers are 'typically more cost-sensitive and reliant on deferred payment'.

Investors will not have missed the irony of yesterday's share market action.

While property was suffering, the rest of the market in Singapore and around the region climbed, cheered by hopes that the United States Federal Reserve will cut interest rates by at least 0.25 percentage point tomorrow. Its aim: to shore up the US property market.