We take a look at the REIT crash and the latest real estate cooling measures

Welcome to this week’s edition of Stock Market Highlights where we bring you insightful snippets from news events and company announcements.

Singapore REIT crash

The Singapore REIT (S-REIT) sector has been under pressure this year due to a combination of high inflation and rising interest rates.

The US Federal Reserve recently raised its benchmark policy rate by 0.75 percentage points, the third consecutive series of hikes of this magnitude.

The U.S. key rate is now between 3% and 3.25%, and Federal Reserve Chairman Jerome Powell reiterated the central bank’s tough stance of raising rates further to stifle inflation and bring it back. at 2%.

Due to this hawkish tone, many REITs have plunged to their 52-week lows.

Data Center REITs REIT Keppel DC (SGX:AJBU) hit a year low of S$1.64, down 33.6%.

REITs with foreign properties, such as Elite Commercial REIT (SGX: MXNU) and Blue chip US REIT (SGX:OXMU) also plunged 40.5% and 31.3%, respectively, to their 52-week lows.

Even REITs with powerful sponsors such as Mapletree Logistics Trust (SGX: M44U), or MLT, and Frasers Logistics and Business Trust (SGX: BUOU), or FLCT, were not spared.

MLT is down 19% year-to-date, while FLCT is down 21% over the same period.

And there could be more pain ahead for the sector as expectations are for further rate hikes.

Investors should focus on the quality and diversification of tenants and also keep an eye on the REI’s cost of debt to see if the distribution per unit could be negatively affected.

New Property Cooling Measures

The Singapore government surprised the market by issuing a new set of property cooling measures around midnight on September 30.

The latest round of cooling measures was introduced just nine months ago in December 2021.

Earlier in September, the Straits Times reported that HDB resale prices had risen for the 26e consecutive August, with a total of 33 million-dollar apartments sold.

This news likely alluded to the uptrend in the real estate market at a time when interest rates were soaring.

For the latest measures, the loan-to-value (LTV) limit for HDB loans has been lowered from the current 85% to 80%.

Moreover, with the rapid rise in interest rates, the government fears that borrowers will see their repayment capacity affected.

As a result, the medium-term interest rate floor used to calculate the total debt service ratio (TDSR) and the mortgage loan service ratio will be raised by 0.5 percentage point.

For residential properties, the assumed interest rate is now 4% (from 3.5%), while non-residential properties will use 5% now, from 4.5% previously.

For HDB apartments, a new floor rate of 3% will be used to calculate the eligible loan amount to prevent borrowers from overextending themselves.

However, the actual interest rates charged on mortgages will still be determined by private financial institutions such as local banks and finance companies.

These measures will reduce the maximum amount that can be borrowed from HDB.

To cope with the sustained demand for HDB resale apartments, the government will impose a 15-month waiting period on private landlords before they can acquire an HDB resale apartment.

The announcement mentions that this is a temporary measure to reduce the high demand for resale apartments which will be reviewed in the future.

Grab Holdings (NASDAQ: GRAB)

Grab recently hosted its first Investor Day where management clearly outlined its growth initiatives and goals for achieving profitability.

COO Alex Hungate detailed three areas of focus for the business.

The first is to consolidate its leadership position by working closely with consumers and partners, the second is to build an effective platform and the last is to develop financial services capabilities to serve its customers.

There are several strategic initiatives related to the above, including growing GrabUnlimited subscriptions, pursuing its grocery strategy, and leveraging partnerships to build its ecosystem.

Grab has partnered with Coca Cola (NYSE: KO) to unlock new growth opportunities and has also collaborated with Starbucks (NASDAQ: SBUX) in six Southeast Asian markets across multiple services.

The goal is to eventually move marketing from all merchants to a unified platform that includes ads.

Meanwhile, Grab’s digital banking initiative is expected to break even in 2026.

Take, with your partner Unique (SGX: Z74), launched GXS Bank early last month with its first savings product.

The company plans to launch its digital bank in Malaysia and Indonesia in 2023, with losses expected to peak next year.

Overall, Grab expects to deliver 45% to 55% year-over-year revenue growth for 2023 and break even at the EBITDA (earnings before interest, tax, depreciation and amortization) by the second half of 2024.

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Disclaimer: Royston Yang owns shares of Starbucks, Keppel DC REIT and Frasers Logistics & Commercial Trust.