Bank imposes caps on valuations and puts 80% ceiling on loans
Wee Cho Yaw has done it again, though only time will tell if he was ahead of the curve.
At a time when property prices have started to touch giddy heights, the chairman of United Overseas Bank (UOB) has reportedly asked his institution to tighten lending criteria.
Since late last month, UOB has been lending only 80 per cent of a home’s valuation, even though most banks are willing to stump up 90 per cent of the selling price.
UOB has also decided to put its own cap on valuations, which appear more conservative than the current market prices.
Mr Wee, arguably Singapore’s sharpest banker, stepped down as chief executive of UOB in April this year and was succeeded by his oldest son, Ee Cheong.
UOB’s stricter lending criteria mean that some potential borrowers have been turned away. A UOB mobile sales banker complained that she has been losing sales but has told prospective customers that she can try to appeal on their behalf. UOB is believed to be the first bank to make its lending norms more stringent.
At UOB’s second-quarter results on Tuesday, Eddie Khoo, executive vice-president, personal financial services, said that less than 10 per cent of the bank’s new home loans this year provided more than 80 per cent financing.
‘We require a higher cash portion,’ said Mr Khoo.
He said that more than 80 per cent of UOB’s home loans were for owner occupation and that foreigners accounted for 20 per cent of home loan customers.
For certain hot projects in the prime districts such as Orchard Residences, Scotts Square or St Regis Residences, UOB has put a valuation cap of $3,600 per square foot (psf), even though sales and sub-sales have been reported at much higher prices.
Scotts Square, launched last week, saw 169 units sold at an average price of $3,983 psf. The highest price paid was $4,430 psf for a one-bedroom apartment on the 41st floor, of the 338-unit project, said Wheelock Properties, the developer.
The median price for St Regis Residences on Cuscaden Road, developed by City Developments, is $3,713 psf, according to Urban Redevelopment Authority data. In June, it was reported that a unit went for $4,635 psf at the 173-unit St Regis Residences which has only 15 units unsold.
At selected projects in the upmarket districts 9, 10, 11 and in Marina Bay, UOB is said to have set the valuation cap at not more than $2,600 psf.
Sub-sales of The Sail @ Marina Bay are being advertised at prices ranging from $1,900 psf to over $3,500 psf. Caveats lodged show that units were sold from prices as low as $1,249 psf for The Sail which was first launched in 2004.
Even for the recently launched Fontaine Parry near Serangoon, UOB is said to have a valuation cap of $834 psf. According to sole agent Knight Frank, the first phase of Fontaine Parry, which was sold out, saw prices starting at $850 psf and some sub-sales are now going for $900 psf.
For the first half of 2007, UOB grew its total home loans book 18 per cent, outpacing the industry average, to $20.7 billion. DBS’s group home loans rose 8.75 per cent to $26.1 billion. UOB said Singapore mortgages were up 15 per cent while DBS reported an almost similar growth of 14 per cent.
In August 1995, Mr Wee said famously: ‘I don’t think the property market will collapse but prices have reached a high and the upside is limited.’
Although still sympathetic to first-time property buyers or HDB upgraders, he said the bank had more stringent criteria for speculative buyers and those investing in second properties.
The strategy meant that UOB lost some market share in property loans.
UOB that year reduced financing to only 65-70 per cent of the purchase price of a property, compared to about 90 per cent in 1992, just before the height of the property frenzy which peaked in 1996 before crashing.
Singapore’s property market subsequently went into a long depression, which lasted for the most part of the decade until 2003 and sent many borrowers into negative equity - where the size of their loan was larger than the value of their property.
The bank is opting for caution again.
Said a spokesman: ‘UOB has always taken a prudent approach in its credit assessment process. A loan application is assessed on the creditworthiness of the borrower as well as the merits of the property. We would consider the loan application favourably if the borrower meets our criteria. From time to time, the bank reviews its home mortgage policies, and if necessary, adjustments may be made to align with market conditions.’
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