Grace Ng
Finance Reporter
The Straits Times
10 July 2007
The overall exposure of Singapore banks to property-related loans taken out by investment buyers and financial institutions amid the property boom is rising. But experts are not worried. A new Citigroup report says the percentage is set to climb from 27% of total loans currently to 'closer to 30%' by year-end.
But this is 'still comfortably below' a regulatory limit of 35%, it said. Foreign banks may be nearer to the limit than local ones, said Citigroup economist Chua Hak Bin yesterday.
All these figures exclude property loans taken out by owner-occupiers - about 80% of all bank loans.
If banks approach the limit, customers could be charged higher interest rates for investment- related mortgages compared to owner-occupied ones, suggested Dr Chua.
Mr Paul Kwee, Citigroup Singapore's corporate bank director and head of real estate, noted: 'In view of the recent increase in lending activity, it may well be that certain banks have less appetite, and may become more selective in granting loans, as well as in reviewing the terms that go with the loans.'
Dr Chua also pointed out that while speculative buying of property has risen and may climb further over the next few years, it is still well below the level seen in the property boom of the mid-1990s.
So bank-loan exposure to the property sector 'is likely to remain within tolerable limits'.
In May, about 25% of mortgages taken out by investment buyers and 33% of loans to financial institutions were property-related, estimated Citigroup. This works out to an overall property-related loan exposure for the banking sector of 28.7%, well below the 35% limit.
The limit was introduced by the MAS in May 2001, as a safeguard to limit the risks of the banking system's exposure to property loans, especially speculative activity.
But Dr Chua expects 'mortgage growth to accelerate' to near 30% in the next 6 months, as more new property projects are completed and some homebuyers on the deferred payment scheme apply for loans.
A higher proportion of new mortgages are likely to be investment-related, given the 'already high home ownership in Singapore of about 93%'.
OCBC Bank has seen the ratio of new applications for investment properties to owner-occupied ones rise, but the latter is still the 'key driver of overall sales', noted head of consumer secured lending Gregory Chan.
DBS Bank and Maybank said about a fifth of their Singapore mortgages are for investment properties, while Standard Chartered Bank said the percentage is between 15 and 20%. The rest are owner-occupied ones.
A Maybank spokesman argued that 'there is no direct relationship between loan rates and the 35% limit'. The pricing of mortgage rates and corporate loan rates depends on a combination of factors, such as the risk profile of the borrower, the purpose of the loan and the type of property mortgaged, she said.
In his report, Dr Chua also noted that property speculation may have increased, as reflected in the rise in sub-sale deals to about 10.5% of total transactions for the April to May period, compared with about 3% 3 years ago. But this is still much lower than the 1990s peak.