ST : Banks feel chill of new property rules

Sep 29, 2010

Banks feel chill of new property rules

Some report dip in home loan applications

By Esther Teo



SOME banks are starting to feel the chill of property cooling measures, a month after tougher home ownership rules were unveiled to rein in speculators.

They have reported a dip in home loan applications, in tandem with weakened buying sentiment as the measures kick in.

Most banks said, however, that there has also been an increase in the number of enquiries on the new measures, as buyers consider their financing options.

A DBS Bank spokesman said yesterday that it has seen a rise in enquiries from customers over the new measures on their loan applications.

United Overseas Bank's (UOB), head of loans division Chia Siew Cheng said that the property market has slowed down, with potential homebuyers staying on the sidelines to assess the impact of the new measures.

It seems that most property developers, however, are still proceeding with their latest project launches, she said.

It was a different story at Maybank Singapore, though. Its head of consumer banking Helen Neo said there has been no significant impact in terms of loan applications.

The turnaround time for processing loans, though, has been affected, owing to the additional checks required as a result of the new guidelines, she added.

Ms Neo said that while no customers had cancelled their loan applications as yet, many were taking a wait-and-see stance, even as the bank received a higher number of enquiries from prospective homebuyers.

The new rules, announced on Aug 30, state that buyers with one or more outstanding housing loans will now have to stump up a downpayment of at least 30 per cent of the property's price, up from 20 per cent previously.

At least 10 per cent must be in cash - up from 5 per cent before - but the remainder can come from their Central Provident Fund (CPF) accounts.

This means that buyers will now be able to borrow up to only 70 per cent of the property's purchase price, instead of 80 per cent previously.

A report by Moody's Investors Service earlier this month said that Singapore banks will benefit over the medium term, as their exposure to heavily indebted customers and future property price shocks will be reduced. This will enable their earnings to stabilise due to a decline in potential loan losses.

'In the short term, however, these benefits will be less obvious because credit costs on housing loans usually remain low until property prices start falling. Furthermore, a decrease in loan demand could negatively impact banks' interest income,' the report said.

A healthy property sector is critical for the three local banks - DBS, UOB and OCBC Bank - Moody's said.

All have 'significant exposures to the property market' - 52 per cent to 54 per cent of total loans as of June 30 - through their housing loans and lending to the construction and real estate sectors, of which a majority of borrowers are Singaporean.

On the ground, the picture is not clear yet. All eyes were on Hoi Hup Sunway Development's preview launch of its 473-unit Vacanza@East - a freehold project in Lengkong Tujoh near the Pan-Island Expressway in the east - yesterday. It is the third project to be launched after the measures were introduced.

In the first phase of the preview, 141 units were launched, the majority of which were two-bedroom and three-bedroom apartments. Hoi Hup Sunway, however, declined to reveal sales figures.

When The Straits Times visited its showflat yesterday afternoon, however, more than 100 people were milling around to view the property.

One potential buyer, who wanted to be known only as Ms Poh, said she was eyeing a 1,012 sq ft three-bedroom apartment listed at $1.14 million - or $1,126 per sq ft.

She decided against the purchase eventually, as she had an existing mortgage and would be able to take out only a 70 per cent loan with the tighter financing rules. 'With the new measures, it's now out of (my) price range,' she said.

esthert@sph.com.sg


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A report by Moody's Investors Service earlier this month said that Singapore banks will benefit over the medium term, as their exposure to heavily indebted customers and future property price shocks will be reduced. This will enable their earnings to stabilise due to a decline in potential loan losses.