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Exit of deferred payments not a fatal blow: Goldman

Mid to mass market may be hardest hit as some projects see 50% opt for scheme

(SINGAPORE) The withdrawal of the deferred payment scheme (DPS) for property purchases may quell demand in the short term, but will not deal a fatal blow to Singapore’s residential market, says Goldman Sachs.

The investment bank also expects negative investor sentiment on property developers in the short term, but kept its ‘buy’ on GuocoLand and a positive view on real estate investment trusts (Reits).

Goldman Sachs Global Investment Research’s report is among the first to be made available after the government announced last Friday that it was removing a scheme that allowed the bulk of payments for property purchases to be deferred till the project was completed.

Goldman said that parties that are likely to be affected by the move include property speculators, foreigners buying Singapore properties here and ‘buyers who are stretching their affordability to buy a property’.

The bank says that the key test bed for the negative impact is the mid to mass market, even though the prime to luxury end of the residential market will be affected as well.

This is because ‘there are projects in this segment where over 50 per cent of purchases are accounted for by buyers opting for the DPS route’, and ‘the need to secure financing upfront will cause buyers in this segment to hesitate in committing to buying’.

However, its analysts see certain mitigating factors like strong job creation and economic growth, which supports a positive long-term outlook on this segment.

In the short run, the pace of new launches and take-up of new launches are expected to slow over the next three to six months as property prices are likely to come under marginal pressure.

Goldman said that this would result from undiscounted selling prices, which could have been set higher using DPS, negative impact on certain pools of demand and negative impact on sentiment.

Indeed, the removal of DPS raises the risk of government intervention to curb rising property prices, the report added.

‘Given such a backdrop, we foresee developers being less aggressive in recycling monies earned from successful launches into beefing up residential land banks,’ it said.

Hence, its analysts have trimmed their forecast residential selling prices by around 3-4 per cent, assuming flat prices in 2008 as well as slower growth going forward.

‘We also remove the 10 per cent premium to return on net asset value, where applicable, to reflect a more murky picture on developers recycling capital to expand land bank.’

Against this backdrop, Goldman kept its ‘buy’ on GuocoLand with a price target of $6.20 as ‘we continue to like the China projects and find valuation attractive’.

Also, it maintains its ‘neutral’ stance on CapitaLand, City Developments and Keppel Land with price targets of $8.30, $15.70 and $8.90 respectively.


Source: Business Times 29 Oct 07

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