atans1

How can property prices come down?

In Banks, Economy, Property on 05/05/2010 at 5:48 pm

Plenty of ranting and raving on socio-political blogs blaming everything on the PAP for the rise in HDB flats. I’m sure the slowdown in the building of flats, coupled with the faster flow of FTs  had something to do with the present price rises.

But a more important factor must be the willingness of the banks to lend. As BT reported last Saturday

BANK lending rose in March for the fifth straight month, as the economic outlook and business sentiment continued to improve, encouraging businesses and consumers to borrow and banks to lend.

Total Singapore-dollar bank lending here rose 0.5 per cent, or $1.54 billion, in March to $286.3 billion at the end of the month, driven by improvements in both business and consumer lending, the latest estimates from the Monetary Authority of Singapore show.

Compared to a year ago, bank lending was up 5.8 per cent, the fastest expansion since April last year.

The latest business expectations surveys published yesterday showed that firms in both the services and manufacturing sectors expect the business environment to improve further in the six months to end-September, compared to the previous half year. Within financial services, banks and finance companies were the most positive on the business outlook …

Consumer loans, which have grown steadily throughout the financial crisis and economic downturn, mainly due to housing loans, expanded another 0.8 per cent, or some $1 billion, in March to $131.2 billion.

Housing and bridging loans, were again the driving force for the growth, rising 1.4 per cent, or $1.3 billion, over the month to $95 billion at the end of March

Overall, for the first three months of the year, bank lending grew 1.8 per cent, or $5 billion. Though smaller than the 2 per cent expansion in the fourth quarter of last year, the slower pace of growth in overall loans masks a recovery in loans to businesses, which expanded one per cent over the quarter, even as the growth in consumer loans slowed…

With renewed competition among the banks, particularly in the Singapore home loans segment, the banks’ net interest margins – which measure how profitable their lending activities are after deducting funding costs – are likely to have been squeezed in the first few months of the year, analysts said this week. That means the banks would need to increase the volume of loans they make, to keep their net interest income from falling.

So banks will continue to lend for housing and the rants will continue.  And when the banks stop lending, and prices fall, the rants will be abt govmin allowing the value of  HDB flats to fall, conveniently forgetting that flats are now easier for young couples to buy. Just like now the ranters conveniently do not mention that the escalating prices means older S’poreans can cash out and downgrade, or move on to other countries.

But don’t spare yr tears for the PAP: by making property prices the benchmark on how well they are doing for S’poreans, they are riding a mad beast that they cannot control. Either way they lose. Dr Goh Keng Swee and his dream team would have told them not to be sold stupid


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  1. I would agree that the availability of finance is the single largest factor in determining property prices. This is especially the case in Australia where the banks have very stringent servicability criteria.

    However the impact of this factor in Singapore is somewhat distorted for HDB flats as it is still possible for HDB resale buyers (the main drivers of price increases) to obtain a loan from the HDB (which has the implicit backing of the government and therefore should be more willing to lend than a bank).

    Upgraders and people who have large deposits through CPF will also be less affected. Your point would be more applicable to private property; though I am not sure of the extent to which that market is driven by foreign investment.

    On the side;

    1) About 80% of total lending by Singapore banks is tied up in mortgages, i.e. unproductive lending. In my opinion this is extremely unhealthy.

    2) You may be interested in the following information about using lines of credit to purchase property in Singapore. I would be interested in your opinion on this matter.

    http://thesglottery.blogspot.com/2010/05/singapore-banks-locs-and-prime-rate.html

  2. We all know banks charge interest as the price for assuming the risk of default on a mortgage; the whole point of a valuation is, by gauging the property’s worth, to determine the amount of risk they are willing to assume. As such, valuations are done primarily to protect the lender.

    As we saw in the US and Dubai, if there are too many inflated valuations and defaults, the banks lose heavily as they cannot recoup the money which they paid out in loans.

    What is interesting about HDB is their level of risk in the case of a default is close to negligible, since they already have your monies in their hands anyway – if you consider CPF as their funding base for lending.

    In other words, since that 35% of your salary must go to CPF no matter what, in effect you have already “contributed” your mortgage to their funding pool.

    For example, in Australia if I default on a mortgage, the bank takes back the property. I don’t need to pay anything to the bank anymore. In Singapore, if you default on your flat, HDB takes it back. However, I still need to pay that 35% into CPF. Given that it will be decades before I get any of those monies back, who is to know what it may be used for in the interim?

    I do not believe it coincidence that, by the government’s own admission, the typical monthly repayment of a HDB mortgage these days is almost equivalent to the monthly contribution to one’s OA.

    This phenomena may be responsible for encouraging HDB to give increasingly larger loans.

    What are your opinions on this?

  3. For clarification’s sake, I’d like to add after this sentence:

    “For example, in Australia if I default on a mortgage, the bank takes back the property. I don’t need to pay anything to the bank anymore.”

    the following:

    “If the property’s value has fallen below the initial valuation for the mortgage, the bank is permanently stuck with the loss.”

  4. Hi Joe

    The rise in private property prices is due to the availability of finance from banks for locals. Morgan Stanley has reported that foreign buying has not been that strong — yet.

    The HDB market gets pulled up the appreciation in private hsing. Taz how I see bank financing pulling upHDB prices.

    Yes it is strange the huge differential between housing loans and loans secured by OD. Banks cannot give a convincing answer. I suspect is that for the latter, they can get away with it azs the pool is smaller and is tied to the bank. Hassle and costly to remortgage to another bank.

    On 35% point yup agree with you in principle. It should be 34.5% (20 +14.5)

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