EnBloc deals could pose "risks to sustainable conditions" in property market: MAS

After a wave of collective sales in Singapore this year, the central bank says it will continue to monitor market developments and take appropriate actions where necessary to “maintain a stable and sustainable property market”.

SINGAPORE: The revival of the en bloc market could bring about risks to the “sustainable conditions” in the local property market, said the Monetary Authority of Singapore (MAS) in its latest Financial Stability Review released on Thursday (Nov 30).

Developers, potential buyers and lenders should “proceed cautiously” with a medium-term view of the market's supply-demand dynamics, it urged.

In its annual review of financial stability, the central bank said 20 residential projects – totalling about 2,900 homes – have been sold in 2017 through en bloc transactions as of mid-November. Driven by developers seeking to replenish their land banks, the number of collective sales so far this year is well up from six deals in the whole of 2016 and one deal in 2015.

The redevelopment of these en bloc sites, coupled with supply from the Government's land sales programme, could see the possible addition of 20,000 new private homes in the market. This will more than double the number of unsold units within the next one to two years, according to MAS.

Over the medium term of three to five years, the development of en bloc and Government land sales sites will increase the private housing stock. However, with slower population growth, MAS noted that there is “considerable uncertainty” as to whether existing vacancies and new supplies coming on stream "can be fully absorbed by the market".

“Should there be insufficient occupation demand for the completed housing units, a supply imbalance could result and place downward pressure on prices and rentals in the medium term,” it wrote.

Hence, developers should take into account the significant rise in the number of private housing units available for sale in the near term when bidding for land, MAS said.

The central bank also urged prospective buyers to remain prudent. “They should also factor in potential increases in their debt servicing burdens if interest rates rise and rentals fall given current elevated vacancy rates," it wrote.

Meanwhile, banks should continue to maintain prudent underwriting standards and review their valuation practices to ensure that property appraisals remain realistic and substantiated, added MAS.

"Recent developments could pose risks to sustainable conditions in the property market," it said. "MAS will continue to monitor market developments and where necessary, take appropriate actions to maintain a stable and sustainable property market."

HIGHER PRICES, MORE TRANSACTIONS IN PRIVATE PROPERTY MARKET

Amid the pick-up in Singapore's private residential property market, MAS noted that both prices and the number of transactions have increased in recent quarters.

Private home prices rose slightly by 0.7 per cent in the third quarter, after a gradual decline over 15 consecutive quarters. Prices in the Outside Central Region (OCR), Rest of Central Region (RCR) and Core Central Region (CCR) rose by 0.8 per cent, 0.5 per cent and 0.1 per cent, respectively.

Buyer sentiment has also improved, as seen in the higher take-up at recent project launches and the increase in resale transactions, said MAS.

The total number of transactions in the first 10 months of 2017 rose 54 per cent compared to the same period last year. However, sub-sale transactions, a proxy for speculative activity, have remained low and broadly unchanged.

The increase in transactions also came about amid continued low interest rates, MAS noted.

The three-month Singapore Interbank Offered Rate (SIBOR) remains low, although it has increased slightly over the past year. The commonly used reference rate for housing loans stood at 1.1 per cent in mid- November, compared to a peak of 3.6 per cent recorded in 2006.

Given the increased transaction activity, new housing loans have risen to an average of S$3.5 billion per month in the first 10 months of 2017, up from S$2.8 billion over the same period last year.

Still, the growth in outstanding housing loans remains low at 4 per cent year-on-year as of October.

“The asset quality of housing loans continues to be strong. Both loans in arrears and NPLs (non-performing loans) are low,” MAS wrote in its report, while noting that the share of loans that are more than 30 days in arrears and NPL ratio were 1 per cent and 0.4 per cent respectively in the third quarter, unchanged from a year ago.

Its stress test results indicate that the banking system would be resilient to a sharp drop in property prices of 50 per cent over a three-year period, the central bank added.

However, the local rental market remains weak, with more than 30,000 vacant private housing units as of third quarter this year.

Despite declining from the peak of 8.9 per cent in the second quarter of 2016, vacancy rates remain relatively high at 8.4 per cent in the third quarter.

Third-quarter rentals have stayed unchanged from the previous three months, after falling by a cumulative 12.5 per cent since the third quarter in 2013.

"Should interest rates rise or rentals fall further, some borrowers could face difficulties meeting mortgage repayments on their investment properties," MAS said.

Source: Channel NewsAsia 30th November 2017

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EnBloc deals could pose "risks to sustainable conditions" in property market: MAS

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