The property cooling measures are showing a great impact on the marketfrom past few days, andSingapore banks are expected to receive huge benefits from this shift. Rating agency Moody’s recently revealed that if the property prices fall considerably by a large amount, it will reduce the speculative demand for the residential properties in the area.
Measures that include a tighterloan to value limits and additional stamp duty rates for buyers are capable enough to reduce the price bubble for properties. Few additional risks involved in this process are losses from mortgage loans and future price shocks that will add a credit positive for the banks in Singapore. Simon Chen, the senioranalyst at Moody’s,said that these new measures wouldmost probably dampen the bank loans for the residential properties and it will further lead to speculative purchases and resurgence in investments.
It is believed that with the strong supply pipeline and rising interest rate environment, these measures will also improve quality of recently originated housing loans assets of Singapore banks. If we look at the analysis performed by the end of the month of March on three banks- United Overseas Bank, OCBC Bank and DBS Bank; they had around 42 to 50% of estimated loans related to the propertysector.
As per Moody’s analysis, it is believed that household loan delinquencies will be stuck to a lowerlevel so long. It will happen because the total debt service ratio cap, estimated around 60 % has constrained the credit growth for household and it also lead to excessive borrowing. Singapore household is also observed to have a strongnet asset position, andit will work asan extra buffer to deal with the debt. If we compare the results with the previous year’s household liabilities reports, the total household financial assets are more than 3.5 times by this year.
The rating agency also reported that the system-widenonperformingloan ratio of Singapore for mortgages was observed to be 0.4% by the end of last year when banks also hadlow average mortgage LTV ratio, somewhere around 53 percent. Less than 5% of mortgages are observed to have LTV ratios higher than 80%, andSingaporean banks are not allowed to offer any housing loan at such high LTV rating since the year2013. Bank shares also rose a fewdays ago where DBS was leading its way with 1.4% gain over $25.71, UOB was observed to end at 0.9% higher at $26.51 whereas OCBC was up by 0.6% at $11.31.
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