Making Singapore homes great again for banks isn’t easy


The best start to a year since 2014 in Singapore’s property market seems to have finally lifted the spirits of investors in its banks.

A 37% jump in new home sales in January ought to be making lenders optimistic about what the Year of the Dog holds for their all-important mortgage businesses. Yet when the property data were released Wednesday, shareholders were still stuck in the past. Both Oversea-Chinese Banking Corp. and United Overseas Bank Ltd fell by more than 2% after the lenders made aggressive provisions on bad loans to the oil services industry.

Thursday saw a predictable recovery, as investors switched their gaze from the rearview mirror, as a Bloomberg News report described the banks’ stepped-up allowances, to the road ahead. Housing credit accounted for 27% of OCBC’s customer loans last year; building and construction made up another 15%. For the banking system as a whole, what used to be high-double-digit growth until 2013 has wallowed at below 5% year-on-year for 29 straight months. Any change in this equation would help lenders greatly.

Still, a little caution is warranted. Singapore’s housing rebound appears more robust than it is. The number of private apartments sold by developers in January was only 522, or half of the past decade’s monthly average. If the city-state maintains this pace, and Hong Kong sustains last year’s crop of 18,500, Singapore will end 2018 with a third of its arch rival’s sales.

Perhaps the much-anticipated cooling of the red-hot Hong Kong residential market will occur this year, pushing more investor demand (read, mainland Chinese money) to Singapore. I’m not holding my breath, though. Banks in Hong Kong are still serving up attractively priced fixed-rate mortgage offers to permanent residents, according to Bloomberg Intelligence analysts Patrick Wong and Francis Chan. Interest-rate shocks may lie ahead. For now, the only fear Hong Kongers have is of missing out.

Meanwhile, Singapore is far from firing on all cylinders. As I noted earlier, rents aren’t improving in line with rising prices. So the buy-to-rent motivation can’t be very strong. As for demand from working folks taking out mortgages to purchase family homes, there’s a natural limit to buoyancy. The big constraint is incomes. Condominium-dwelling families, the most affluent of Singapore’s resident population, earned an average S$20,491 ($15,590) last year from wages. That’s only S$278 more than the previous year, and barely enough to absorb a third of a percentage point increase in the interest on a 2%, S$1 million mortgage.

Tax increases may also weigh on sentiment. There’s a good chance the 7% goods and service levy will rise, with Prime Minister Lee Hsien Loong saying in his Chinese New Year message that issues relating to an aging population “guide the thinking behind the budget” due on 19 February. This, too, could weigh on home-purchase sentiment. Over the past five years, the real, or inflation-adjusted, income of condo dwellers has increased only 0.9% a year, compared with 1.6% in the previous five-year period.

Should the government scale back the high stamp duties on buyers, optimism—and sidelined buyers—may return more strongly to the housing market. However, given Singapore’s money glut, as evident from the city’s interbank rates tracking below Libor, authorities may be hesitant to allow a tsunami of new overseas cash.

If the benchmark local-dollar interest rate continues to languish at 1.13%, mortgage loans linked to it won’t be very profitable for banks. Somewhat higher interest margins with reasonably strong volumes may be their best hope for 2018. Unless the budget has some unexpected goodies, a bumper harvest for banks from Singapore’s property market is unlikely. livemint