Friday, December 01, 2006
[RealEdge] BT : Negative housing equity in S'pore falls markedly
| Published December 1, 2006  | |
| FINANCIAL STABILITY REVIEW | |
| Negative housing equity in S'pore falls markedly Private home prices rising at their fastest in 6 years (SINGAPORE) Thanks to the recent rise in property prices, the negative housing equity situation in Singapore - where the mortgage loan exceeds the underlying property's market value - has substantially eased. A Monetary Authority of Singapore (MAS) survey of six banks that account for almost the entire housing loan market found that negative equity for private residential properties fell to 4.7 per cent of the total value of outstanding mortgage loans in September 2006 from 7.1 per cent a year ago, the central bank said yesterday in its latest Financial Stability Review. In terms of the number of mortgage accounts, 5.1 per cent were in negative equity in September 2006, compared with 7.6 per cent a year earlier, said MAS. Prices for private housing have been rising at their fastest in six years. According to statistics from the Urban Redevelopment Authority, prices of private residential properties were 2.7 per cent higher in the third quarter of 2006 than in the previous quarter, the highest quarter-on-quarter increase since 2000. Performing an 'adverse scenario' analysis, MAS said that lower GDP and wage growth may lead to a slight increase in households' mortgage servicing burden. If GDP and wage growth in 2007 were reduced by about three percentage points and one point, respectively, from the baseline forecast, the mortgage servicing ratio for all income groups would rise by 0.2-point to 14 per cent of total household income. 'However, the lowest 20 per cent income households may be relatively more affected given that their base mortgage servicing burden is higher than that of the other income groups,' MAS said. For this group, the mortgage servicing ratio may rise to 32.1 per cent from 31.7 per cent. Households' repayment ability is a key element of financial stability as they account for about three-fifths of non-bank loans. 'Indeed, a deterioration of households' repayment capacity, which could materialise if indebtedness rises rapidly without a corresponding increase in wealth and income, can create stress in the banking system and undermine financial stability,' MAS said. Overall, households' total borrowing remained flat in the first half of 2006 as the growth in mortgage loans extended by banks was offset by the fall in mortgage loans extended by the Housing Development Board and personal loans. Reflecting the faster pace of economic growth, household liabilities as a percentage of nominal GDP fell to 77 per cent in Q2 2006 from 96 per cent in Q4 2003. 'This level of household indebtedness is now lower than that in developed countries such as the US and the UK and the five-year average growth of household debt in Singapore has been slow compared to that in many countries,' the central bank noted. Looking ahead, MAS said that the operating environment could present some challenges for the banking industry. In particular, a sharper-than- MAS expects Singapore's economic growth to moderate to 4-6 per cent in 2007 from as much as 8 per cent this year along with a slowdown in the US economy and global technology market. However, 'local banks' strong capital positions and diversified income streams should contribute to their capacity to absorb shocks', it said. MAS noted that the local banks' operating profit for the first nine months was higher than that in the past three years, driven by contributions from net interest income given strong economic activity, favourable loan demand and interest margins, coupled with greater non-interest income especially from commissions and wealth management. |
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