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Slower growth in home loans expected from cooling measures

07 Jul, 2018

HOME buyers will be hit hard by the latest property cooling measures since the lower borrowing limits require them to stump up a lot more cash, say bankers.

With the new set of cooling measures comprising a reduced loan-to-value (LTV) limit and increased additional buyer stamp duty (ABSD), new property buyers will require more cash/CPF funds for their downpayments, said Tok Geok Peng, DBS Bank head of secured lending.

"For instance, based on a S$1.5 million property price, the now-lower LTV will increase the cash/CPF outlay by S$75,000, which could be a considerable amount and pose a deterrent for some property buyers," said Ms Tok on Friday.

First time buyers are not affected by the higher ABSD which took effect July 6, but they will be hit by tighter LTV limits for home loans. The revised LTV is now 75 per cent, from 80 per cent previously, so a buyer has to stump up 25 per cent cash, up from 20 per cent.

Higher ABSD - an extra 5 percentage points - applies for second and subsequent homes for citizens and permanent residents while foreigners face 20 per cent ABSD, up from 15 per cent.

"Given that a mortgage loan is a long-term financial commitment which requires careful planning, we are urging buyers to work out their sums, especially for the cash/CPF funds needed for the higher downpayments and for some, the higher ABSD," she said.

"Given the extent of the new cooling measures, we expect the home loans demand to be subdued," said Koh Ching Ching, OCBC Bank, head, group corporate communications.

The measures are expected to shave 1-2 percentage points off bank loans growth, said analysts. Loans growth of the three local banks for 2018 is likely to fall to 6-7 per cent from 7-8 per cent previously, they said.

"The three local banks may see some reduction in future mortgage demand. But earnings per share impact from this event alone is limited," said Krishna Guha, Jefferies equity analyst.

Thursday night's frantic sales at showrooms which netted over 1,000 transactions will make this a bumper month, said Carmen Lee, head of OCBC Investment Research. Homebuyers thronged showrooms on Thursday night to beat the July 6 deadline.

While this will not hurt the current mortgage portfolio for the three banks for now, new loans growth could come off in line with the slowdown in property transactions in the coming quarters, she said.

"The next three to four months will be quiet."

In terms of loan book, housing loans accounted for about 22 per cent of DBS' loans portfolio, 26 per cent for OCBC and 28 per cent for United Overseas Bank in 1Q18.

Underlying demand from first time buyers is there, noted Ms Lee. In the last four to five years, new household formation per year has averaged 30,000, with Housing Board flats accounting for about half of the demand. Not every new household, such as newlyweds, buys a home.

DBS Equity Research said it expects Singapore banks' 2Q18 earnings to remain positive, supported by sustained NIM (net interest margin) uptrends and low credit costs. "

But 2H18 might see the tide turn, especially in loan growth."

The property cooling measures would likely hit UOB, which is most exposed to property-related lending.

"Our FY18-19 loans growth forecast is now lowered to 5-6 per cent per annum from 7-8 per cent as we expect the new cooling measures to impact UOB's large portion of property-related loans," said DBS Equity Research.

But it expects UOB's NIM to rise by 9 basis points in FY18F and another 5 basis points in FY19F, taking into account some element of competition.

For OCBC, it revised the loans growth from 8 per cent to 7 per cent for FY18. "We lowered our NIM assumptions by about 6 basis points for FY18 on slower loan repricing amid higher cost of fund."

Adapted from The Business Times, 7 July 2018.