BankBazaar Singapore – January 9, 2018
Singapore: The Monetary Authority of Singapore (MAS) has decided to impose more checks and balances on lending activities in the Singapore property market. The move was necessitated by a sudden surge in the number of aggressive land deals and over-enthusiasm in the market, which pushed up property prices unreasonably.
According to a report published in Business Times, the Singapore central bank has decided to be more vigilant about bank financing offered to property developers. It has been seeking more details about financed projects through a new survey sent to banks last month.
MAS has decided to collect critical information like the size of a bank’s exposure to debt, and details like loan-to-value (LTV) ratio for each development project and the key agreements governing each.
In a byte given to Business Times, a spokesperson for MAS has defended the decision by saying that the central bank is trying to ensure sound credit underwriting standards are followed by issuers of business loans for project developments in Singapore. He further added that it is a standard practice undertaken by MAS as part of its supervisory work to monitor lending practices involving specific business sectors.
MAS had highlighted in its November report that it anticipated potential risks to stability of the property market due to speculative pricing and improper valuation. It had also urged market players to take a cautious stance towards medium-term demand-supply market dynamics and to protect the quality of their assets.
Market watchers have opined that these moves are directed especially towards government land sales (GLS) and en bloc land deals. Many of these projects have extremely high LTV, raising potential risks for the lenders. Some experts have suggested that the government can look at imposing upper caps on the loan available for a development project following Hong Kong Monetary Authority’s decision last year.
Speculations are rife whether this move will have the desired effect, especially because a land deal in Hong Kong went on to touch the record high despite the monetary authority’s move. Some experts feel that reduced funding would mean that developers would have to churn out capital from their own reserves, impacting their return on equity (ROE) margins. According to some, the move might work as lenders and borrowers will be cautious during transactions. This would improve the asset quality for lenders.
Realtors claim that there hasn’t been a significant surge in the net gearing ratio for most developers, barring a few small or medium ones. While some projects may be overleveraged, many are flush with cash. They have questioned the logic behind recommendations for greater government regulation, especially because a small percentage of projects remain overleveraged. They have pointed out to efforts in Hong Kong where regulations haven’t managed to dampen market sentiments.
Some bank representatives have said that while sometimes a bank may agree to extend financing to a real estate company with strong balance sheets for a project with high LTV, normally they do their due diligence and put their assets through stress tests regularly.