Source : The Business Times, September 5, 2007
(SINGAPORE) Banks are tightening up on the way they lend money for buying homes while the property market is coming off the boil, housing agents report.
With the world's financial markets in turmoil, following a crisis in US mortgage lending to people with bad credit records, bankers in Singapore say that when it comes to assessing home loan applications, the ability of borrowers to pay is paramount.
The trouble in the financial markets, coupled with the 'ghost month' here which makes the third quarter traditionally a slower period for home sales, has led to asking prices easing, especially in the secondary market, agents say.
Citigroup economist Chua Hak Bin says: 'Banks have definitely become more cautious.
'Just look at The Straits Times classifieds - they're flooded with speculators trying to offload.'
Dr Chua reckons that property prices have cooled about 5-10 per cent.
Knight Frank managing director Tan Tiong Cheng has a different take on the situation; he says prices from actual deals that he has seen have not slipped. 'That impression may have come from those ridiculous (asking) prices,' he said.
He said the apparent increased wariness of bankers was a reaction to the volatility in the stock market which was affected by the US sub-prime mortgage crisis. And bankers' 'natural instinct' is also to be more prudent, said Mr Tan.
Generally, banks continue to finance a maximum of around 80 per cent of the value of a property, despite rules allowing up to 90 per cent funding. And some housing agents say banks have become stricter in valuations and are lending less than 80 per cent of the value of the property.
'Banks control the valuations,' said one agent.
The agent said feedback from buyers is that banks can't match the valuations and they have to cough up more cash for the purchase.
Especially at times of rapidly changing prices, the notional value of a property as set by expert valuers can be adrift from what buyers are actually called on to pay.
Banks say they rely on their panel of experts appointed from property consultant firms for valuations. Some also have in-house valuers to provide a view of the overall market.
'In general, we will take the valuations by the appointed valuer as fair value,' said Gregory Chan, OCBC Bank head of consumer secured lending.
'However, where new benchmark pricing is concerned, we will take the average. Although valuation is a key component, a borrower's creditworthiness remains the primary consideration in determining loan eligibility and some factors taken into account include income level, credit history and repayment ability.'
Helen Neo, Maybank Singapore head of consumer banking, said the bank does not discriminate against high-end properties, especially where purchase price is supported by valuation.
'However, we would take a more conservative stance in terms of loan quantum should the purchase price exceed valuation significantly,' she said. 'However, for loans amount of $2 million and below, we require the borrower to use our in-house valuer.'
A DBS spokeswoman said: 'In assessing loan applications, we accept valuations professionally done by reputable certified valuers who are on the DBS panel. In addition, we consider the buyer's ability to repay and the purpose of the purchase.'
At DBS's second-quarter results briefing in July, chief executive Jackson Tai said the bank had been taking a 'stringent view' on credit quality and had 'avoided any concentration' in a single development or district.
At the very high end, foreigners make up a significant portion of buyers - and banks have been seeing more of such borrowers.
Edmund Koh, DBS's head of regional consumer banking, said there had been an increase in foreigners taking up loans, from 5.6 per cent of the total new loans book last year to 7.8 per cent for the year to date.
United Overseas Bank executive vice-president Eddie Khoo disclosed last month at the bank's second-quarter results that foreigners account for about 10 per cent of home loans. Overall, too, the bank was being cautious, given the market conditions.
'As you know, property prices are moving up quite rapidly,' said Mr Khoo. 'But what's good is that we are seeing less than 10 per cent of loans being booked (with) more than 80 per cent financing. We have a good portion of customers putting in more cash and equity in the purchase of property.'
Dr Chua said that banks were becoming more cautious in extending property loans to foreigners, especially in cases where prices were sizzling and people were buying for investment.
Anecdotally, he was aware of several cases where people could not get valuations to match their purchase prices.
For the mid-tier segment and if it is for owner occupation, banks are still more relaxed in their loan criteria, Dr Chua said.
Latest official data show that borrowing by homebuyers was up 8.1 per cent in July, accelerating from 6.9 per cent in June.
Mortgage growth had been sluggish for several months despite the Singapore property boom.
In the 11 months to March, mortgage growth in Singapore remained under 3 per cent even though home sales surged.
A key factor for this is the popularity of deferred payment schemes offered by developers, and many of these projects are approaching completion.
Dr Chua expects mortgage growth to reach double digits by the end of the year.
UOB and DBS said their Singapore mortgage book grew at 15 and 14 per cent respectively in the first half of this year.
There is little similarity between US lending practices and those in Singapore, where the banks have a good buffer in their exposure to mortgages. Although the Monetary Authority of Singapore eased financing limits from 80 per cent to 90 per cent two years ago, most banks said the bulk of their loans are booked at not more than 80 per cent financing.
They also said that investment properties do not account for more than 20 per cent of total loans.
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