Singapore banks' mortgages may end 2024 with flat to low-single-digit growth, say Bloomberg Intelligence analysts Rena Kwok and Ken Foong.
“The lenders will likely be selective in pricing to defend market share despite mortgages' good risk-return profile,” say Kwok and Foong in a Jan 10 report. “Defaults are low with DBS's D05 mortgages the least risky. Demand for homes looks healthy due to their inflation-hedging ability and positive supply-demand dynamics.”
Muted y-o-y growth for home loans
Banks here face muted y-o-y growth in housing loans, according to the analysts. Drawdowns of a healthy loan pipeline built over the past few years, even as the number of housing projects set to receive temporary occupation permits (TOP) in 2024 drops, could support Singapore banks' mortgage growth this year.
Still, mortgages could finish the year with flat to low-single-digit growth as the healthy pipeline may be partly offset by mortgage repayments amid still-elevated rates. In addition, the analysts warn of a slight slowdown in new mortgages booking following the government's cooling measures last year.
Big local banks may be selective in their pricing even as they defend their market share in mortgages amid stiff competition, as these loans offer favourable risk-returns given their low risk-weighted assets consumption for banks, say Kwok and Foong.
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In particular, Oversea-Chinese Banking Corporation’s (OCBC) 2% y-o-y mortgage growth in 2Q2023 lagged local peers’ 3% but was still above the banking sector's average.
Defaults unlikely
Mortgage defaults may remain negligible for Singapore's banks in 2024, as resilient incomes and employment could help Singaporeans weather higher interest costs, say the analysts.
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Potential credit losses from mortgages look minimal for the three big local banks — which, with an average market share in the high 20%, account for most of the sector's mortgages — and point to tight risk controls, low overall loan-to-value ratios ranging 40% - 60%, resilient household finances and macroprudential measures.
Among the local banks, as of 2Q2023, the average probability of default of DBS's mortgages at 0.5% was the lowest.
The ratio of Singapore's gross non-performing housing and bridging loans was 0.3% in 3Q2023.
According to the Credit Bureau Singapore, mortgage delinquencies were below 1% for borrowers aged 21 years and older.
Healthy demand for private homes
Housing demand in Singapore could remain healthy on supply-demand dynamics and homes’ inflation-hedging capability, say Kwok and Foong. “But this could be offset by buyers being selective, which might cause prices to move sideways in 2024, with some downside risk.”
Demand more than soaked up launches in 2022 and the first four months of 2023. However, with the big rise in launches thereafter, mainly in May and July, more time might be needed to sell the projects, say the analysts.
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Units sold rose to 784 in November 2023, a big jump from the 203 sold in October 2023, mainly due to three launches — J'den, Hillock Green and Watten House — after a nearly three-month pause since the last big launch.
“Buyers may remain selective due to global economic and interest-rate uncertainties, along with more choices in launches,” write Kwok and Foong. “Launches may also be moderately priced to draw demand.”
As at 1.45pm, shares in DBS are trading 53 cents lower, or 1.61% down, at $32.34; while shares in OCBC are trading 12 cents lower, or 0.93% down, at $12.76; and shares in UOB are trading 53 cents lower, or 1.90% down, at $27.98.
