•        Introduction of TDSR likely to impact volume demand rather than price
•        Buyers may re-look and likely continue to migrate towards small units
•        Sector unlikely to perform in the near term, be selective, top pick UOL

Policy fine-tuning targeting at financial prudence.  MAS has introduced a new debt servicing framework for all property loans granted to individuals. These measures, effective from 29 June 2013, are structural in nature, put in place for the long term and are aimed at encouraging prudent borrowing by households and strengthen financial institutions (FIs) credit underwriting standards. Under the new ruling, FIs will be required to adhere to a TDSR of 60%. In addition, MAS will also require borrowers’ names on a property to be the mortgagors of the residential property which the loan is taken, guarantors who are standing guarantee for borrowers who do not meet the TDSR to be brought in as co-borrower, in case of joint borrowers the income weighted average age of the borrowers when applying for loan will be used.

Impact on volume demand.  We think the latest move would not have a large impact on the property market, rather on those who have a more highly leveraged balance sheet, and push buyers to look at smaller units to lower financing capacity to meet the revised TDSR. In general, household balance sheets have remained healthy with a liability to asset ratio of 16% as at 2Q12. Our current projection is for a 20% drop in volume demand this year with prices remaining relatively unchanged at -5% yoy and we are maintaining this view. 5MTD primary home sales ex-ECs are 23% lower yoy, largely in line with projections.

Neutral on absence of near term catalyst, selective stance adopted.  We do not expect significant effect on share prices following this announcement although sentiment in the short term will be dampened. The sector is now trading at 34% discount to RNAV, close to the -1stdev after the recent sell-off. While RNAVs should remain relatively robust this year, headwinds from property fine tuning and China slowdown will continue to exist. In the absence of near term catalyst to boost sector performance, we are neutral on the property sector and is selective in our stock picks. We like UOL for its diversified portfolio and the potential to unlock hidden value in its assets.
 

                                                                                                                             
                                                                                                                                                     
                                                                                                                                                     
                                                                                                                                                     
MARKET PULSE: Residential Property, SATS, Vard                                                                                                      
                                                                                                                                                     
                                                                                                                                          1 Jul 2013
                                                                                                                                                     
KEY IDEA                                                                                                                                            
                                                                                                                                                     
SG Residential Property: A total debt profile framework                                                                                              
                                                                                                                                                     
Summary: MAS announced a set of Total Debt Servicing Ratio (TDSR) requirements whereby FIs will now account for borrowers’ other debt obligations    
when granting property loans. A TDSR limit of 60% will be imposed. We see an immediate impact that borrowers now cannot circumvent LTV and ABSD      
rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of  
loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles. Over the mid-to-longer term,  
we see these measures further constricting financing for buyers with existing property loans. That said, the current 60% TDSR limit appears to be    
fairly reasonable and is not intended to cool down the property market as much as to encourage financial prudence. Maintain NEUTRAL on the domestic  
residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Maintain BUY on CapitaLand [BUY,
FV: S$3.77], Keppel Land [BUY, FV: S$4.59] and CapitaMalls Asia [BUY, FV: S$2.55].                                                                  
                                                                                                                                                     
MORE REPORTS                                                                                                                                        
                                                                                                                                                     
SATS Ltd – Middle-East exit for now                                                                                                                  
                                                                                                                                                     
Summary: SATS announced that it will sell its 40% equity interest in its Adel Abuljadayel Flight Catering Company joint venture for a cash          
consideration of US$18.4m (~S$23.4m), which is slightly below the book value of the asset as of 31 Mar (S$24.1m). Despite the short two-year tenure  
of the JV, the exit does not signal a change in management intent regarding the region. Management still intends to re-enter the Middle East, and    
will continue to pursue other attractive investment opportunities. In the interim, the outlook for SATS remains positive and we believe the          
counter’s earnings stability and healthy dividends will allow it to stay resilient amidst recent market volatility. Maintain HOLD with an unchanged  
fair value of S$3.15. (Lim Siyi)                                                                                                                    
                                                                                                                                                     
Vard Holdings: Profit Guidance                                                                                                                      
                                                                                                                                                     
Summary: Vard Holdings warned that its 2Q2013 financial results are likely to be below current consensus estimates due to difficulties in its        
operations in Brazil. The group had previously guided that its Brazil operations are coming under control and would stabilize by year-end. However,  
after a recent assessment, management found further delays, cost over-runs at its Niteroi yard due to lower-than-expected productivity, additional  
costs for outsourcing and higher start-up costs at the Promar yard. These issues have adversely impacted its 2Q margin. Operations elsewhere are    
stable and Vard Holdings as a group remains profitable. Our FY13F net profit estimate is 6% below consensus, but we would likely revise lower after  
speaking with management later to get more colour. Thus, we put our Buy rating and S$1.52 fair value UNDER REVIEW. (Chia Jiunyang)                  
                                                                                                                                                     
                                                                                                                                                     
For more information on the above, visit www.ocbcresearch.comfor the detailed report.                                                                
                                                                                                                                                     
                                                                                                                                                     
                                                                                                                                                     
NEWS HEADLINES                                                                                                                                      
                                                                                                                                                     
- Fraser & Neave will appoint advisers to study and review alternative strategic options available to unlock shareholder value, which may involve a  
segregation of its property and non-property businesses.                                                                                            
                                                                                                                                                     
- Sound Global says controlling shareholders are exploring a delisting proposal from the SGX, including acquiring shares not already owned for no    
less than S$0.70 per share.                                                                                                                          
                                                                                                                                                     
- Low Keng Huat has been awarded a S$114.3m construction contract for the design and construction of one block of a hotel development; the project  
expected to be completed in 1H 2015.                                                                                                                
                                                                                                                                                     
- Singhaiyi Group shareholders approve the raising of up to S$226.5m for investing in US real estate via a rights issue and placement.              
                                                                                                                                                     
- Goodland Group agrees to buy a 49% stake in a Cambodian company to undertake residential property development in Siam Reap, Cambodia.              
                                                                                                                                                     
- The yen continued to appreciate against the dollar while Japanese stock futures rose after US equities and Treasuries fell at the end of last week
on concerns of QE tapering measures kicking in as early as Sep.