The additional stamp duty implemented by the government to rein in the residential property market is expected to weaken developers’ stock prices and return on equity (ROE), according to Craig Irvine, Chief Regional Strategist at DMG & Partners Research.
“We believe sentiment is turning down into a multi-year cycle, with important cautionary impact on confidence, liquidity, and consumer behaviour.”
Considering the strong correlation between property companies’ share prices and ROEs, the strategist expects the sector’s share prices to be affected as ROEs decline.
Irvine noted that as the “predicted downside is material”, local property counters like Ho Bee are particularly “vulnerable”. In the pool of developers, Wing Tai was, however, highlighted as a “striking exception”, as the company’s stock is more price-resilient after a sell-down.
“Having fallen 27 percent since end-October, Wing Tai shares actually show upside to their regression trend line over the next year. Wing Tai has already corrected more than any stock in this basket and its projected ROE holds up on the high end of the peer group range,” said Irvine.
At a more macro level, economists believe that this could be the final tipping point of the property cycle.
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