Asian banks are set to gain on a property

The increase in property transactions in Singapore has boosted demand for loans

     After battling stresses from a floundering oil and gas sector over the past year, banks in one of the world’s financial capitals are seeing a bright spot emerge: a booming property market.

The increase in home buying activity in Singapore has boosted demand for loans, recent data indicated. And the banks’ upcoming second-quarter financial reports will show whether housing loans can actually lift earnings for the rest of 2017, analysts said.

Home prices are still falling, rents are tumbling, there’s a substantial pipeline of new units in the works and vacancies are near a record high.

At the same time, developers are ponying up record prices in hotly contested land sales and this year, en bloc deals – where a developer buys an existing building with plans to demolish and redevelop – have already exceeded 2016’s level.

Winston Lee, regional head of special projects for property website PropertyGuru and a Singapore landlord, said recently that the market was humming toward an inflection point, just with some notes out of sync.

Developers sold 2,962 units in the first quarter, excluding executive condominiums, which are a unique hybrid of public and private housing for Singaporeans with incomes exceeding public housing limits.

That total was up nearly 28 percent from 2,316 units sold in the fourth quarter, the highest take-up rate since 2013, while there were 2,170 resale transactions in the first quarter, up nearly 12 percent from 1,944 in the fourth quarter, government data showed.

Mortgages make up 15 to 20 percent of total loans at the country’s three major banks — DBS Group Holdings, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) — according to estimates from Phillip Securities Research analyst Jeremy Teong.

Given the significant weight of the housing loans segment, the Singapore banks will benefit from a stronger Singapore mortgage system loans growth.

Mortgage loan applications were already up by 20 percent in the first quarter of the year from the previous three months, data from Credit Bureau Singapore showed.

The increase came as private housing transactions in the city state grew to a near four-year high in 2017’s first quarter even though authorities have kept cooling measures intact, official data showed.

The government had appeared to be taking a more sanguine view of the need for cooling measures, scaling back some of the curbs in March, including lowering the seller’s stamp duty and shortening the minimum holding period to avoid it.

Developers sold 2,962 units in the first quarter, excluding executive condominiums, which are a unique hybrid of public and private housing for Singaporeans with incomes exceeding public housing limits.

        Better earnings for the rest of 2017?

OCBC is scheduled to release its second-quarter report card on Thursday, followed by UOB on Friday. The largest of the trio, DBS, is expected to report on August 4.

The tight competition in the Singaporean lending space may limit banks’ margins from the stronger domestic property sector, Maybank Kim English analyst Ng Li Hiang wrote in a note last week.

The lumpy write-offs have been made last year, but there is still stress in the sector due to weak charter rates and lower drilling activities, banks may need to pad up provisions as they face lower collateral values in these offshore marine vessels.