SINGAPORE -- The slow-down in Singapore's property market has reduced high-end condominium prices and raised concerns that major local banks could be vulnerable to a surge in non-performing housing loans.
Tightened credit criteria for foreign investors -- who are important players in Singapore's luxury property market -- should nevertheless help shield against large-scale loan defaults, according to a report issued by Maybank Kim Eng this week. It noted that the more stringent credit controls have been in place since 2009.
"After the hard lessons of 1997-98, the authorities have become more proactive," it said. Singapore government measures to prevent bad loans escalating include lowering the maximum loan-to-value ratio that can be applied.
According to Singapore's Urban Redevelopment Authority, the price of private residential properties dropped 4% in 2014. Maybank Kim Eng notes that loan defaults have concentrated mostly among luxury homes which are more popular with foreign investors, particularly those located near Orchard Road, Singapore's retail hub, and Sentosa Island, a vacation destination with sandy beaches and resort hotels.
Among the three largest Singaporean banks, United Overseas Bank (UOB) is the most exposed on Sentosa. The report indicated UOB's non-performing housing loan volume has risen 61.4% since the end of 2013.
In another report, Maybank Kim Eng said UOB is suing a subsidiary of Indonesian conglomerate Lippo Group and seven others over housing loans worth 181 million Singapore dollars ($135 million) used to purchase 38 condominium units in a Sentosa property.
According to UOB, the defendants failed to inform the bank of discounts being given to buyers, enabling inflated loans to be taken out. Of the 38 mortgages UOB provided, 37 have defaulted -- largely explaining the sudden surge in the bank's non-performing housing loans last year.
Despite this case, Maybank Kim Eng concluded that among the three largest Singaporean banks, Oversea-Chinese Banking Corp. (OCBC) is most at risk in the event of a meltdown in the housing market, followed by UOB. DBS Group is least at risk.
Although OCBC's exposure to the luxury properties most favoured by foreigners is lower, the bank lent more heavily overall to property buyers than its competitors from mid 2009 to 2012 when prices in Singapore were breaking records and "speculation was high."