(The following was released by the rating agency)
SINGAPORE/LONDON, January 15 (Fitch) The Singapore government’s measures to cool the property market, including higher stamp duty and tighter conditions for mortgages, may curb the build-up of potential threats to the credit profile of Singapore banks, Fitch Ratings says.
These measures are part of a continuing policy response to the threat of a potential property bubble. The authorities have supplemented a higher tax on residential property purchases for foreigners and companies with the introduction of a sellers’ tax on industrial property. This is important for the Singapore banks, as they hold close to half their credit portfolios in property-related loans. Residential mortgages are a particularly large component, accounting for around 30% of their loan books.
These changes could dampen demand for mortgages for residential investment and commercial properties, but Singapore banks are already quite selective in their lending and underwriting.
A large proportion of residential mortgages on banks’ balance sheets are reportedly for owner-occupiers, rather than for investment purposes. The property-cooling measures are aimed particularly at speculative residential property investment, so mortgage delinquencies are unlikely to rise significantly beyond a gradual pace that is to be expected from a slower economy in the last two quarters. Non-performing loans are at cyclical lows. As interest rates are not used as a monetary policy tool, we believe the greater risk for a spike in delinquencies to be a sharp rise in unemployment - which appears unlikely in the near term.
The new taxes are coupled with more prudent mortgage underwriting requirements, which help reduce the build-up of credit risk. Effective 12 January 2013, loan-to-value (LTV) limits have been lowered for individuals taking on more than one mortgage. Cash down-payments for second or subsequent residential property purchases will increase to 25% from 10%. The mortgage-servicing ratio limits for public housing loans will also be tightened. For companies, the LTV cap will be a very low 20%.
These lending restrictions help underpin the credit profile of Singapore banks. Their sound balance sheets and diversified earnings support their ratings, which are amongst the highest globally. The prudent regulatory backdrop and fiscally strong sovereign are also contributing factors. We see no weakening of the banking sector, despite concerns over a possible domestic housing bubble.
Some of these measures may be temporary, and could be relaxed to reduce the risk of a particularly severe price correction. In addition to the taxes and underwriting requirements, a large supply of public and private housing over the next few years could help property prices stabilise. The authorities have announced up to 200,000 housing units to be completed.