http://www.businesstimes.com.sg/arch...gages-20130115
Published January 15, 2013
DBS chief sees 10-20% drop in mortgages
Analysts say MAS may make housing loans more expensive for banks if latest measures don't work
By Siow Li Sen
[SINGAPORE] Mortgage loans may drop sharply this year, in the wake of the latest property cooling measures, says DBS chief executive Piyush Gupta. He expects the drop to be in the 10 to 20 per cent range.
"I think there will be a slowdown because of all three things - higher cost to property, lower loan to valuation ratios and higher debt burden ratios," said Mr Gupta.
"Rates are still at historic lows, so we've to balance a lot of money available with low rates, because of all the measures. So it's tough to call how much the slowdown will be.
"But my own sense is you might see a 10 to 20 per cent slowdown in the market on a sustained basis in terms of mortgage loans," he added.
Analysts also predicted that targeting the banks to make loans more expensive could be on the cards if the latest cooling measures don't work.
It may be seen as desperate but the regulator Monetary Authority of Singapore is believed to have ruled nothing out.
Last October, after the sixth round of measures were announced, Deputy Prime Minister and Minister for Finance Tharman Shanmugaratnam had said: "We will do what it takes to cool the market, and avoid a bubble that will eventually hurt borrowers and destabilise our financial system."
This could include banning banks from offering low teaser rates or flexible interest rate packages or raising the risk weights for mortgages which will make it more expensive for banks as they will have to set aside more capital for selling home loans.
"With the regulator showing resolve to 'do whatever it takes', future measures could target bringing down the mortgage profitability for banks," said Anand Swaminathan, Credit Suisse research analyst, yesterday.
"Although less probable, some desperate administrative measures to artificially increase mortgage rates in Singapore could be to abolish teaser mortgage rates for the initial years (usually two to three years now), increase mortgage risk weights for banks and clamp down on variable rate loans (by either completely abolishing variable rate loans or stipulating banks to fix interest rates for the initial three to five years)," he added.
But setting a floor for interest rates would benefit the banks by guaranteeing them windfall profits and may be less palatable politically.
Raising the risk weights for mortgages might be a better option as it could be seen as a prudent move as part of safeguarding the banks.
Regulators elsewhere are looking at making it more costly for banks to sell mortgages by raising the risk weights for home loans.
If banks have to put aside more capital for mortgages, they would have to raise interest rates to compensate for the higher costs.
The low interest rates are fuelling the property market and no end is in sight to the historic low rates.
The three local banks have risk weights of 6 to 12 per cent for mortgages, believed to be among the lowest in the world.
Currently banks have the freedom to set their own risk weights under an internal ratings based approach in determining how capital is deployed.
Sweden's regulator last November said it wants a risk weight floor of 15 per cent for Swedish mortgages. The European Union average is 20-25 per cent for mortgages.
The Basel recommendation is 35 per cent for risk weight for mortgages.
As of yesterday, some banks said inquiries from existing customers over the weekend have centred around whether the latest measures affect them.
"We received the most queries from customers who had signed the option to purchase (OTP) before the new measures kicked in. We clarified that since the OTP was signed on or before Jan 11, they will not be affected," said Phang Lah Hwa, OCBC Bank, head of consumer secured lending.
Maybank Singapore head of lending business Alan Yet said customers have called wanting to understand the new rules.
Analysts estimate mortgage growth to possibly halve to single digit this year from last year's double-digit growth alongside predictions that private property transactions could fall 30 to 50 per cent from 2012's 21,000 to 22,000 deals.
"We forecast mortgage loans will grow by 8 per cent in 2013," said Lim Sue Lin, bank analyst at DBS Vickers.
Property loans grew 15.1 per cent year-on-year in October 2012 and 16.1 per cent in November 2012.