They make up 47% of total loans by commercial banks at end-June
(SINGAPORE) As the property boom chugs full steam ahead, banks' exposure to the sector has been steadily widening and their risks may be deepening, especially as a result of the prevalence of deferred payment schemes.
Work in progress: Loans to the building and construction industry jumped 21 per cent to $30 billion from about a year ago As at end-June, housing and bridging loans as well as loans to the building and construction sector made up nearly half - a high of 47 per cent - of the more than $200 billion loan portfolio of commercial banks here, according to preliminary figures obtained from the Monetary Authority of Singapore (MAS).
This has been a steady increase from the 33 per cent from about a decade ago (end-1996) around the height of the last property boom, and the 42.5 per cent at the start of the current property boom at the end of 2002.
In absolute terms, the housing and bridging loans were worth some $64 billion as at end-June, compared to about $63 billion six months ago.
Loans to the building and construction sector stood at about $30 billion as at end-June, an increase of 21 per cent from a year ago, said MAS.Not surprisingly, the run-up in property prices has led to an increase in housing and bridging loans (the consumer loans), but this rise has slowed dramatically from the early years of the current boom.
Right after the current property boom started, housing and bridging loans surged 17 per cent between end-2002 and end-2003 to reach $52.2 billion. Since then, the increase has slowed to about 2 per cent for the first six months of the year and from end-2005 to the end of last year, the value of housing and bridging loans increased by only 2.2 per cent.
Housing and bridging loans' share of the total loans of commercial banks - while still the biggest - has also declined over the last couple of years. Their share of total loans, after building up over the years to a peak of 33.8 per cent at end-2005 has dipped over the last one-and-a-half years to about 32 per cent as at end-June this year.
What is perhaps more significant for the financial sector is that the loans to the building and construction sectors including loans made to developers have been expanding much faster over the past few years and have been taking up a bigger share of total loans extended by banks.
Loans to developers have an added element of risk because of the deferred payment scheme which allows home buyers to pay only a fraction of the property's price upfront.
Loans to the building and construction industry, after contracting between 2004 to end-2005 as the construction industry went through the doldrums, surged 14.4 per cent to $26.3 billion as at end-2006. The further growth to $30 billion as at end-June this year represents a growth of 21 per cent from end-June 2006.
'As MAS has previously said, the use of the deferred payment scheme by property developers introduces additional risks to the developers, and to the banks which finance these developers, because property purchasers under this scheme are not subject to credit checks by developers.
'This is unlike property purchasers who apply for housing loans and are subject to credit assessment by banks. MAS expects banks to exercise prudence in their financing to the property developers and be fully cognizant of the additional risks from the use of deferred payment schemes,' a spokesperson from MAS told BT.
Last week, during the release of MAS' annual report, Heng Swee Keat, the authority's managing director had said that MAS is keeping a close eye on developments in the property boom. As Singapore's central bank and the regulator of the financial industry, MAS's concerns with regard to the property boom are how rising prices impact inflation and the risks posed to the stability of the financial system.
Mr Heng had noted that the banking sector's exposure to the property and construction sectors is 'significant' and that housing and related loans have grown over the last few quarters. 'So for both of these reasons, we will be watching developments in the market very carefully.'
The Urban Redevelopment Authority (URA) price index for private homes, released on Friday, has risen 13.5 per cent for the first half of this year.
URA figures also revealed that developers sold 9,385 uncompleted private home in the first six months of this year, less than a thousand units shy of the record 10,363 units sold through all of last year.
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