Singapore's central bank expressed concern yesterday at the growing mountain of household debt and surging property prices, saying they posed "significant risks" to the country's financial system.
While the city-state's banking system remains sound, the build-up in household debt was "worrying", said Ravi Menon, managing director of the Monetary Authority of Singapore.
He said a growing number of households have overborrowed in the property market, largely due to low interest rates and stretched loan tenures.
Singapore's mounting household debt 'worrying'
"The combination of low interest rates, growing leverage and surging property prices poses significant risks to financial stability," said Ravi Menon, Managing Director of the central bank.
Despite the city-state's sound banking system, the mounting household debt is "worrying", noted Menon, adding that a sizeable number of households have overborrowed in their mortgages due to low interest rates and long repayment terms.
Singapore banks placed on "negative" outlook: Moody's
Credit rating agency Moody's on Monday downgraded the outlook of Singapore's three main banks to "negative" from "stable" amid rising property prices and mounting household debt in the city-state.
"The two main drivers underpinning our opinion are the recent period of rapid loan growth and rising real estate prices in Singapore and in regional markets where Singapore banks are active," it said in a statement. "These have increased the probability of deterioration in the banks' credit profiles under potential adverse conditions in the future."
Moody's said Singapore banks have been operating in a favourable environment for an extended period amid low interest rates and strong regional economic growth, which has led to rising credit and asset inflation in the property and financial markets.
Moody's downgrades Singapore banking system to 'negative'
The outlook for Singapore's banking system has plunged from stable to negative due to the recent period of soaring loan growth, as well as rising property prices locally and in countries where Singapore banks operate.
According to Moody's Investors Service, these factors increase the chance that credit quality would deteriorate under potential adverse conditions in future. "The operating environment for Singapore's banking system has been favourable for an extended period, with low interest rates and strong economic growth domestically and in the surrounding region," said Moody's Vice President and Senior Analyst Gene Fang.
"With the potential risk of a turn in the interest rate cycle, we view strong asset inflation and credit growth trends as vulnerabilities, as this combination would likely cause credit costs to rise from their current low base." Fang was commenting on the recently released Moody's report called Singapore Banking System Outlook, which details Moody's forecasts on how bank creditworthiness will evolve in this system for the next 12 to 18 months.
Singapore cuts CPI outlook, warns of household debt risks
Singapore’s central bank lowered its inflation outlook for the year on Tuesday but said it was concerned about household debt levels as interest rates looked set to rise.
The Monetary Authority of Singapore (MAS) revised downwards its inflation forecast for 2013 to 2-3% from an earlier 3-4%, citing the sharp fall in car prices earlier this year as well as a slower rise in accommodation costs.
Economic growth this year will “comfortably” meet the official forecast of 1-3%, the central bank added, citing the strengthening US economy and Japan’s expansionary policies that will likely offset headwinds from a slowdown in China and easing public spending in some Southeast Asian countries.
Analyst: 9,000 troubled units could be on market
Up to 9,000 Singapore private property owners could be forced to sell their homes if interest rates rise in the city-state, according to an analyst report published today.
On the back of news that up to 10 percent of Singapore households may have already over-leveraged their private property purchases beyond the new 60 percent limit that was recently imposed by the Monetary Authority of Singapore (MAS), wealth management firm Religare Enterprises has cautioned its clients to avoid investing in Singapore property developers.
In its ASEAN Property Pulse report released today, the research arm of the India-based firm explained that between 10 -15 percent of borrowers could be in financial trouble should interest rates rise in Singapore.
Singapore Home Prices Climb to Record as Loan Curbs Imposed
Traffic travels along the Benjamin Sheares Bridge, past a condominium development, in Singapore. Photographer: Munshi Ahmed/Bloomberg
The island-state’s private residential property price index rose 1 percent to 215.4 points in the three months ended June 30, extending a 0.6 percent increase in the first quarter, according to revised figures released by the Urban Redevelopment Authority today. The pace of gains in prices in the suburbs more than doubled from the previous three months.
Record home prices amid low interest rates raised concerns of a housing bubble and prompted the government to widen a four-year campaign to curb speculation in Asia’s second-most expensive housing market. Singapore on June 28 unveiled new rules governing how financial institutions grant property loans to individuals.
Mitigating Interest Rate Risks in Your Properties
In our earlier blog entry on Who will be Hardest Hit by 3.5% Interest Rate, we identified the homeowners most likely to be affected by the interest rate uncertainty brought on by the possible removal or reduction of the United States Federal Reserve Quantitative Easing measures.
Since then, there has been a succession of other events and articles that reinforce our expectations. As reported in Yahoo, several banks in Singapore have either raised interest charged on their fixed-rate home loans or abolished such loans altogether. We, at BLUTA, expect more banks to do so in the coming weeks. Another recent article by CNBC also discussed the dangers of Singapore’s soaring household debt and point out that “the 10-year Singapore government bond yield has risen to 2.5 percent from 1.4 percent in May”.
Do we need to prepare for this? Of course, the million dollar question here is the probability of the interest rates rising and the extent that they do. Some homeowners will need some concrete evidence before even consider making provisions for it.
S'pore banks raise fixed-rate loans
In an effort to hedge against rising mortgage rates in the US, Singaporeans are expected to switch to fixed-rate loans.
However, some local banks have already raised the interest rates on their products.
For instance, Maybank increased the interest rate of its three-year fixed loan by 0.1 percentage point on Monday, while ANZ raised its two-year fixed mortgage by 0.17 percentage point
Good time to lock-in loans, says DBS head
With mortgage interest rates in the US and Singapore expected to rise in the next one to two years, now is an opportune time for borrowers to switch from variable interest rate loans to fixed-rate loans, according to DBS CEO Piyush Gupta (pictured).
But most Asian borrowers prefer floating rate loans rather than fixed-rates, he noted. "In Asia, most of us tend to be punters…Anecdotally, the easiest way to think about this – We go to the US (and) the most popular mortgage is the 30-year fixed rate. In Asia, we at DBS tried pushing two years ago a five-year fixed rate mortgage…almost no takers. So Asians don't like fixing, Asians don't like hedging."
"However, given where we are in terms of our view in the world and the fact that there's likely to be a steepening bias over 12, 24 months, I would suggest it might be worthwhile to think about it."In addition, Gupta cautioned investors to be selective on where they put their money in China due to over-borrowing in that market.
MAS clamps down on bank-developer tie-ups
The Monetary Authority of Singapore (MAS) has introduced a new rule which prohibits financial institutions (FIs) from tying up with property developers and agents to sell property, according to local media reports.
FIs were informed of this new rule the same day the latest property loan curbs were announced that will, among others, prevent banks from providing preferential interest rates to clients acquiring certain properties."MAS is of the view that, except for the granting of property loans, FIs should not be offering any property-related services to customers in general. FIs should therefore not engage in property advertisements or tie-ups with property developers/agents," an MAS spokesman said
"This is regardless of the location of the property (in Singapore or overseas) or the type of the property (residential, commercial or industrial). MAS will take into account an FI's compliance on this issue, in its supervisory assessment of the FI," he noted, adding that the central bank expects full compliance from FIs.
Who will be Hardest Hit by 3.5% Interest Rate
We wrote about the recent property loan regulations announced by Monetary Authority of Singapore (MAS) in our article on 2nd July. We also posited that the introduction of a mandated 3.5% interest rate for total debt servicing ratio (TDSR) calculation implies an unspoken expectation of an interest rate hike in the short to medium term.
As we mentioned in the second article, such a hike in interest rate would surely be accompanied by some market corrections and turbulence. And needless to say, there will be some whose pocketbooks are exposed to a direct hit, due to their property investments.
We will attempt to identify these groups of home and property owners, so that they can take corrective action before things really take a turn for the worse.
Local banks not at risk despite Moody's downgrade: MAS
Singapore banks are not at risk from potential downturns as they have adequate buffers to cope with rising interest rates, according to the Monetary Authority of Singapore (MAS) in its reaction to Moody's outlook downgrade for Singapore banks from stable to negative.
"Local banks are not at risk" even though some borrowers may face problems should interest rates rise due to a slowing of the US Federal Reserve's bond-buying programme, MAS said. "They undertake regular stress tests on their own as well as coordinated by the MAS, and have adequate buffers in place to cope with the inevitable upturn in the interest rate cycle."
Moreover, the financial positions of local banks continue to be strong. As Moody's also concluded, Singapore banks have sufficient capital to withstand even severe stress test scenarios.
Singapore developer CapitaLand warns of headwinds as profit drops
CapitaLand, Southeast Asia's biggest developer, said prices and sales of Singapore residential properties would moderate because of government measures to curb speculation.
The company sold 139 residential units in the city state in the three months to June 30, 31 per cent fewer than in the same period last year, the firm said in a statement through the Singapore stock exchange yesterday.
Second-quarter profit fell 0.7 per cent on lower portfolio gains, it said. CapitaLand expected some headwinds for Singapore's private residential property market in the near term, its earnings statement said.
The Monetary Authority of Singapore (MAS) introduced a total debt servicing ratio cap of 60 per cent for property loans granted by financial institutions. This was expected to have an impact on residential property sales, CapitaLand said.
Loan curbs expected to hit home prices, sales
CapitaLand said prices and sales volume of the residential property sector in Singapore are expected to moderate as the cumulative impact of the various cooling measures is played out in the coming months. -- ST FILE PHOTO
Home prices and sales volumes are likely to head south over the next few months as various measures to curb excessive borrowing take their toll on demand, property giant CapitaLand said yesterday.
"The group envisages some headwinds for the private residential property market in the near term," CapitaLand said in its earnings statement.
"Prices and sales volume of Singapore residential property are expected to moderate as the cumulative impact of the various property measures continue to be played out in the coming months," it added.
More million-dollar HUDC sales to come: expert
Channelnewsasia Forum, 18 Jul 2013
SINGAPORE: Expect more million-dollar transactions of Housing and Urban Development Company (HUDC) units.
This was what one expert -- Nicholas Mak, the executive director for research and consultancy at SLP International Property Consultants -- said about the units, which were built in the 1970s. One unit at Serangoon North was sold for S$1.14 million, which is the highest this year. Last year, another unit at Shunfu was sold for S$1.33 million.
There are currently four HUDC estates pending privatisation. Full story
Related: Singaporeans should not be traumatised over $1m flat price: Khaw Boon Wan - Asiaone.com