Published May 16, 2007

Home loans set to take off

Demand for high-end properties is rising particularly from foreigners, says SIOW LI SEN

BANKERS may finally get some relief as home loans - their biggest product - seem on the verge of taking off after three years of decline.

Since hitting a high of 20 per cent growth in February 2004 - roughly a year after the HDB home loans market liberalised - growth in housing loans has been slipping.

By last year, growth had fallen some 90 per cent. For much of 2006, housing loans grew at a tepid 2-3 per cent level, at odds with Singapore's strong economy and booming property market. Mortgages generally make up about a quarter of the total loan portfolios of local banks.

Part of the reason was rising interest rates which went from sub-one per cent in 2003 to as high as 4 per cent last year, prompting borrowers to repay as much of their outstanding mortgages as possible.

Other factors cited were the huge number of en-bloc sales which resulted in entire developments being repaid, and the popularity of deferred payment schemes offered by developers. But things are looking up. In March, the latest data available, housing loans grew 3.6 per cent, the strongest pace in a year. This followed the 2.7 per cent in February, 2.5 per cent in January and 2.2 per cent in December 2006.

Picking up

Ng Wee Siang, BNP Paribas analyst, said the mortgage recovery appears well underway. 'I won't be surprised if it's over 4 per cent for April.'

Mr Ng reckons that private properties sold in 2005 will be completed this year, triggering loan drawdowns. In 2005, developers sold 8,955 private homes, a 55 per cent increase from 2004. Condominium construction usually takes two to three years.

The latest bank results for first quarter of 2007 also show a pick-up in mortgages, though not across the board.

United Overseas Bank (UOB) saw the fastest growth in housing loans, rising 16 per cent year-on-year to stand at $19.8 billion at end-March.

DBS Bank, the largest mortgage lender here, saw its home loans grow more slowly at 5.7 per cent to $25.8 billion. But its Singapore housing loans - which make up about two-thirds of total housing loans - grew 10 per cent. The bank saw a doubling of new loan applications in Q1, compared with the same period last year.

OCBC Bank said its home loan book stayed unchanged at $18 billion.

'This year's home loans growth is better than last year,' said Kevin Lam, head of loans at UOB. The bank's Singapore housing loans, which make up about two-thirds of its outstanding home loans book, grew 13.6 per cent in 2006. 'By caveats lodged, UOB financed one out of three private properties in 2006,' said Mr Lam. UOB has been doing well in this area because of its focus on the high-end residential market, he had said in a recent interview. 'UOB's average home loan size used to be about $500,000, currently it's $750,000,' he added.

Singapore's property boom has been led by high-end homes, fuelled by overseas buyers who were not burnt by the property collapse after the Asian financial crisis of 1997/98.

Until last year, many local home owners were still sitting on negative equity - where the value of their homes was worth less than what they owed to the banks.

Recent buyers' profile are different from a year ago, noted Elaine Heng, general manager, mortgages and auto, consumer banking, Standard Chartered Bank. 'Now it's foreigners and high net worth customers.'

'From the fourth quarter of 2006, Stanchart has enjoyed a surge in volume, a 30-40 per cent increase in home loan sales,' she added.

Attractive rates

Last year, foreigners' share of total caveats lodged for private homes was 23 per cent, up slightly from 22 per cent in 2005 - though still shy of the peak figure of 24 per cent in 1995. These private homes include apartments, condos and landed properties.

To better serve foreign buyers, UOB launched its international home loans programme in January. This serves foreigners buying properties in Singapore, Thailand, Shanghai and Malaysia.

'We're booking about $100 million per month for the UOB International Home Loan,' said Mr Lam.

Maybank has also zoomed in on this richer group of buyers. It has its Premier Package, which targets both local and foreign home buyers.

'This package was introduced in response to growing demand for higher-end properties and increasing interest from foreigners in our local properties,' said Helen Neo, Maybank's head of consumer banking.

'The bank offers attractive interest rates to this group of customers,' she said.

Tan Chia Seng, Citibank Singapore business director, said the bank has seen a healthy 20 per cent growth in new home loans in the past year, particularly in the private home loans market.

'The Singapore property market has recovered strongly in the past year, helmed mainly by the boom in the upper end of the residential market,' he said.