Citigroup Inc. (C) said it's "encouraging" that the city's household debt tied to the real estate market is only a fraction of property values, downplaying concerns of a bubble.
Singapore's S$203 billion ($160 billion) of mortgages amounted to 24.2 percent of the value of residential properties in the third quarter, according to Citigroup's analysis of government data. The lender, the biggest employer among foreign banks on the island with 10,000 employees, offers housing and car loans as well as credit cards and other banking services.
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"Nobody has walked me through the mechanics of a total crash of the real estate market for it to be compelling," Michael Zink, who heads Citigroup's operations in Southeast Asia, said in an interview in Singapore on Feb. 20. "Ninety percent of households live in a home that they own, so where's the bubble?"
Singapore's fourth-quarter home prices slid 0.9 percent, falling for the first time in almost two years as the government introduced more taxes and restrictions to widen a campaign that began in 2009 to curb speculation. The central bank said last month that new residential loans have declined and household balance sheets are strong, following a Forbes article that said the city is headed for an "Iceland-style meltdown."
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Concerns of a property bubble in Singapore, ranked Asia's second-most expensive luxury housing market, came after home prices rose in the past five years to a record amid low interest rates. Residential values jumped 61 percent since mid-2009, when they were at their lowest in 2 1/2 years following the 2008 global financial crisis.Loan Limit
After introducing taxes on property sales, the government added them to homebuyers and imposed mortgage limits. In June, the central bank also said financial institutions granting property loans need to ensure that individuals' monthly repayments on all debt don't exceed 60 percent of income.
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Singapore's mortgages exceed those in Hong Kong, ranked by Knight Frank LLP as the most expensive city to buy a luxury home in Asia. Hong Kong's housing loans amounted to HK$900.3 billion ($116 billion) at the end of the third quarter, according to data from the city's central bank.
Zink said Singapore's housing market is unique because the majority of citizens live in government-built homes, where many families have already paid off their mortgages. About 82 percent of Singaporeans live in these so-called Housing & Development Board apartments, according to the housing authority's website.
"So if it goes up and down a little bit, for an asset they can't sell, does it really affect them much? I don't think so," said Singapore-based Zink, 55, who's lived in Asian cities including Jakarta and Guangzhou for 17 years.Falling Prices
Singapore's biggest bank and developer said in the past two weeks they expect home prices to fall this year. That drop may also drive up the ratio between loans and the property values.
DBS Group Holdings Ltd. (DBS), also Southeast Asia's largest lender, said Feb. 14 there will probably be a 10 percent to 15 percent reduction in home prices in the city-state this year. DBS's mortgage portfolio has been stress-tested to withstand a 30 percent drop, Chief Executive Officer Piyush Gupta said.
Lim Ming Yan, CEO of CapitaLand (CAPL) Ltd., the region's biggest developer, said last week the government may ease some of its curbs if home prices fall as much as 10 percent.
Singapore Finance Minister Tharman Shanmugaratnam said in the nation's budget speech on Feb. 21 that it's too early for the government to start relaxing its measures, given the run-up in prices in the past four years.Hard Landing
"We are not engineering a hard landing," he said in Parliament. "Our cooling measures have been aimed at moderating the market, so as to prevent property prices from getting too far out of line with incomes."
CapitaLand also said housing demand is expected to "further moderate" with the curb on borrowing levels and concerns that interest rates will rise.
The loan restriction in June "is the silver bullet the government has been looking for," said Nicholas Mak, executive director and head of research at SLP International Property Consultants in Singapore. "The potential for a bubble has been greatly deflated."
Mak estimated that 65,000 private homes could be completed between 2014 and 2016. The housing authority will release another 24,300 new apartments this year, it said in a January statement. These homes, which cost less than those sold by private developers, are typically offered with a 99-year lease.Stress Tests
"There's a reason why the government has released a lot of new land," Zink said. "There's underlying demand for that segment of housing."
The 1997-1998 Asian financial crisis and the outbreak of Severe Acute Respiratory Syndrome, or SARS, in 2003 are reference points to build into stress tests, Zink said.
Property prices dropped 2 percent in 2003, falling for a fourth year and capping the longest stretch of losses since the city-state started compiling the data about two decades ago. Housing values slumped 42 percent in the two years during the regional crisis, according to the data.
Citigroup, which also offers private banking services in Singapore, said the net worth of Singapore residents have risen 38 percent over four years, based on its analysis of government data. The country's households had S$874.7 billion in financial assets at the end of the third quarter, eclipsing the S$837.9 billion they hold in real estate assets, it said.
"There are a lot of households in this country that are financially very stable," Zink said.
To contact the reporter on this story: Sanat Vallikappen in Singapore at firstname.lastname@example.org
To contact the editor responsible for this story: Chitra Somayaji at email@example.com
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