Industry shocker: UOB’s non-performing housing loans spiked 34.2% in Q2

Residential NPLs are now at a 10-year high.

UOB took the banking sector by surprise when it revealed that its non-performing housing loans jumped 34.2% in the second quarter, taking NPLs to their highest level since 4Q04.

According to Maybank Kim Eng, the sharp spike in UOB’s housing NPLs is surprising given the perception that it is one of the more conservative home lenders in Singapore and only a slight year-to-date correction in Singapore’s home prices.

“We understand its NPLs were isolated to a group of borrowers who had invested in Turquoise, a high-end condominium project in Sentosa. According to URA data, two units at Turquoise changed hands in 2Q14 at 45% discounts to their launch prices. It stoked fears that it is a matter of time before default cases become widespread, undermining Singapore banks’ profitability that has been propped up by low charge-off rates,” noted the report.

Here’s more from Maybank Kim Eng:
To ascertain sentiment on the Sentosa micromarket, we examined recent transactions of non-landed properties there.

There are nine condominium projects in Sentosa. ASPs for the first four were below SGD1,600 psf, as they were launched during the nascent recovery of Singapore’s property market in 2004-05 The remaining five were launched later and priced above SGD2,600 psf.

In our view, the large losses at Turquoise can be partially explained by the project’s higher launch price.

Its SGD2,605 psf launch price is about 75% above the average of The Oceanfront (SGD1,360 psf) and The Coast (SGD1,592). These two were launched one year ahead of Turquoise. This could mean that higher-priced projects at Sentosa are at greater risk of a price correction.