No housing bubble in Singapore: Citigroup

Mortgages of $203b only 24.2% of property values in Q3, says lender

The Business Times - February 25, 2014
[SINGAPORE] Citigroup Inc said that it's "encouraging" that Singapore's household debt tied to the real estate market is only a fraction of property values, downplaying concerns of a bubble.

Singapore's $203 billion of mortgages amounted to 24.2 per cent of the value of residential properties in the third quarter, according to Citigroup's analysis of government data. The lender, the biggest employer among foreign banks on the island with 10,000 employees, offers housing and car loans as well as credit cards and other banking services.

"Nobody has walked me through the mechanics of a total crash of the real estate market for it to be compelling," Michael Zink, who heads Citigroup's operations in South-east Asia, said in an interview in Singapore on Feb 20. "Ninety per cent of households live in a home that they own, so where's the bubble?"

Singapore's fourth-quarter home prices slid 0.9 per cent, falling for the first time in almost two years as the government introduced more taxes and restrictions to widen a campaign that began in 2009 to curb speculation. The central bank said last month that new residential loans have declined and household balance sheets are strong, following a Forbes article that said the city is headed for an "Iceland-style meltdown".

Concerns of a property bubble in Singapore came after Singapore's home prices rose in the past five years to a record amid low interest rates. Residential values jumped 61 per cent since mid-2009, when they were at their lowest in 21/2 years following the 2008 global financial crisis.

After introducing taxes on property sales, the government added them to homebuyers and imposed mortgage limits. In June, the central bank also said that financial institutions granting property loans need to ensure that individuals' monthly repayments on all debt don't exceed 60 per cent of income.

Mr Zink said that Singapore's housing market is unique because the majority of citizens live in government-built homes, where many families have already paid off their mortgages. About 82 per cent of Singaporeans live in these so-called Housing & Development Board apartments, according to the housing authority's website.

"So if it goes up and down a little bit, for an asset they can't sell, does it really affect them much? I don't think so," said Singapore-based Mr Zink, 55, who's lived in Asian cities including Jakarta and Guangzhou for 17 years.

Singapore's biggest bank and developer said in the past two weeks that they expect home prices to fall this year. That drop may also drive up the ratio between loans and the property values.

DBS Group Holdings, also South-east Asia's largest lender, said on Feb 14 that there will probably be a 10-15 per cent reduction in home prices in the nation this year. DBS's mortgage portfolio has been stress-tested to withstand a 30 per cent drop, chief executive officer Piyush Gupta said.

Lim Ming Yan, CEO of CapitaLand Ltd, the region's biggest developer, said last week that the government may ease some of its curbs if home prices fall as much as 10 per cent.

Singapore Finance Minister Tharman Shanmugaratnam said in the nation's Budget speech last Friday that it's too early for the government to start relaxing its measures, given the run-up in prices in the past four years.

"We are not engineering a hard landing," he said in Parliament. "Our cooling measures have been aimed at moderating the market, so as to prevent property prices from getting too far out of line with incomes."

CapitaLand also said that housing demand is expected to "further moderate" with the curb on borrowing levels and concerns that interest rates will rise.

The loan restriction in June "is the silver bullet the government has been looking for", said Nicholas Mak, executive director and head of research at SLP International Property Consultants in Singapore. "The potential for a bubble has been greatly deflated."

Mr Mak estimated that 65,000 private homes could be completed between 2014 and 2016.

The housing authority will release another 24,300 new apartments this year, it said in a January statement. These homes, which cost less than those sold by private developers, are typically offered with a 99-year lease.

"There's a reason why the government has released a lot of new land," Mr Zink said. "There's underlying demand for that segment of housing."

Citigroup, which also offers private banking services in Singapore, said that the net worth of Singapore residents have risen 38 per cent over four years, based on its analysis of government data. The country's households had $874.7 billion in financial assets at the end of the third quarter, eclipsing the $837.9 billion they hold in real estate assets, it said.

"There are a lot of households in this country that are financially very stable," Mr Zink said. - Bloomberg