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Latest Property Curbs To Put Singapore Banks On Better Credit Standing
Perspective | 17 January 2013
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By: Choo Hao Xiang
Articles (151) Profile

The new package of measures designed to cool the local property market have put a dampener on property developers, but there may be something to cheer about where the banks are concerned.


Just over three months after the Monetary Authority of Singapore took steps to keep property prices in check, the Ministry of National Development announced on Friday a set of rules touted as the most sweeping package of property cooling measures. This is the Singapore government’s seventh attempt to prevent a potential property bubble since the start of the initiative in late 2009. Despite the implementation of multiple rounds up till October last year, the very low interest rate environment and continued income growth in Singapore continued to fuel demand for residential property. Sparing only the first-timers, the new set of rules, some of them temporary, are calibrated to further cool demand by discouraging over-borrowing.

The additional rules, most took effect on 12 January, include:

  1. Higher buyer’s stamp duty ranging from five to seven percent;
  2. Tighter loan-to-value limits on housing loans for those with at least one outstanding housing loan;
  3. Increased minimum cash down payment of 25 percent pertaining to applications for second or subsequent housing loans;
  4. (Only mortgages on public housing) Cap of 30 percent on mortgage servicing ratio for housing loans granted by financial institutions while loans granted by the Housing Development Board (HDB) will have the ratio lowered to 35 percent from 40 percent;
  5. New restrictions on Permanent Residents upgrading to private property from public housing as well as subletting of their HDB flats; and
  6. Revision of the use of Central Provident Funds for the purchase of public housing (effective 1 July).

New restrictions were also placed on executive condominium developments and industrial properties.

Stock Performances Of Property Developers And Banks

Source: FactSet Research Inc.

Reactions To Cooling Measures
While reactions to the new policy have been distinct for property developers, those of the banks were somewhat subdued. Residential mortgages make up a large portion of domestic banks’ loan books. As of 30 September 2012, housing loans account for 21.4 percent, 25.9 percent and 29.1 percent of the loan books of DBS Group Holdings, Oversea-Chinese Banking Corporation and United Overseas Bank respectively. The loans also is the single largest segment in their book.
According to a report by Credit Suisse, UOB and OCBC have grown their mortgage book the most over the past two years and also year-to-date as of 3Q12. Also, OCBC has a bigger presence in HDB mortgages, which have come under new restrictions.

Although the new policy put in place will impede future growth of their mortgage book and competition may intensify as the pool of new loans shrinks leading to margin compression, Fitch Ratings said that the lending restrictions will help underpin the credit profile of Singapore banks. In an article dated 14 January, Fitch noted that a large proportion of residential mortgages on banks’ balance sheets is reportedly for owner-occupiers, rather than for investment purposes.

Another contributing factor is the improved attractiveness of new loans on a risk-adjusted basis. This would in turn lead to better asset quality. According to CIMB, mortgage default risks are now reduced as the loan-to-value limits tighten.

Among the banks, CIMB, which maintains a Neutral rating on the banking sector, pointed out that UOB may be the key loser as the banking group has the largest proportion of mortgage loans. Meanwhile, DBS was Goldman Sachs’ preferred choice as the company has the strongest pre-provision operating profit growth potential versus its peers, driven by its fee income platform.

Haoxiang manages and oversees the portfolio of stocks in the consumer goods and hospitality sectors at Shares Investment.

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CapitaLand  3.560 +0.02 +0.56%   
Business: Co develops, owns, and manages real estate properties. [FY18 Geographical] China (41.2%), S'pore (38.5%), Europe & others (18.6%), Vietnam & Others (1.7%).

Insight: Apr-19, 1Q19 revenue fell 23.8% while net profit d... Read More
City Developments  9.880 +0.15 +1.54%   
Business: Co is an international property & hotel conglomerate. [FY18 Turnover] Property development (48.4%), hotel operations (39.8%), rental properties (8.5%), others (3.3%).

Insight: May-19, 1Q19 decreased 29.5% to $746.2m compared t... Read More
Wing Tai Hldgs  2.050 +0.01 +0.49%   
Business: Singapore-based property developer and lifestyle company. [FY18 Turnover] Development properties (51.5%), retail (36.5%), investment properties (9.6%), others (2.4%).

Insight: Feb-19, 1H19 revenue rose 7.1% to $193.9m largely ... Read More
DBS Group Hldgs  25.050 +0.11 +0.44%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More
United Overseas Bank  26.000 +0.05 +0.19%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More
Oversea-Chinese Banking Corp  10.860 +0.08 +0.74%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More

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