Singapore banks to reap surprise benefits from real estate

Asset quality for home loans will stabilise.

Singapore banks are more than likely to get a boost from the recent easing of property rules.

According to UOB KayHian, the fine recalibration of seller’s stamp duty represents the first relaxation of demand-side cooling measures. The change in policy direction could engineer a bottoming of prices for private residential properties.

"Banks benefit from the recovery in sentiment for the private residential property market. In aggregate, housing loans and building & construction accounted for 40-50% of total loans for the three banks," said UOB.

In January, the industry-wide housing loans and building & construction grew moderately by 3.9% and 2.1% year-on-year, respectively. OCBC and UOB have the largest exposure to
housing loans at 27% of total loans on a group-wide basis. UOB also has the largest exposure to building & construction at 23% of total loans.

Just recently, DBS and UOB launched promotions for housing loans pegged to Fixed Deposit Home Loan Rate (FHR) at zero percent spread, which are targetted at projects under construction. Homeowners benefit from zero percent spread for three to four years until the projects receive temporary occupation permit (TOP).

"Housing loans pegged to FHR are very popular due to concerns over rising interest rates. These promotions were supposed to have ended. However, similar packages could re-surface should competition heat up again," noted UOB.

Meanwhile, the banks will also benefit from stabilisation in asset quality for housing loans. UOB's NPL for housing increased by $38m in 3Q16 due to deterioration in the high-end residential property market in Singapore. On the other hand, OCBC’s NPLs for housing loans increased by $40m or 11% quarter-on-quarter in 4Q16 as the bank repossessed nine properties, some of which were high-end residential properties located in Sentosa Island.

"The easing of cooling measures would stabilise asset quality for housing loans. The industry-wide average LTV for housing loans is very healthy at 52.6% as of 3Q16," said UOB.