MAS warns property buyers against weak rental market and interest rate hikes

By PC Lee / The Edge Singapore | November 30, 2017 1:46 PM SGT
SINGAPORE (Nov 30): Property buyers should be aware that the subdued rental market and further interest rate hikes could weigh on their ability to service their debts, says the Monetary Authority of Singapore (MAS) in its latest Financial Stability Review for November.
In addition, households should stay financially prudent and assess their ability to service debt in the longer term even as household debt growth remains in line with income growth over the past year, says MAS, Singapore’s de facto central bank.
The financial regulator says recent developments in the property market pose potential risks to stability and market players should take a medium-term view of supply-demand dynamics and act with caution.
MAS says the supply of private housing will increase significantly over the next few years. Units available for sale will more than double as the development of en-bloc and Government Land Sales (GLS) sites could add another 20,000 units.
As at 3Q17, there were more than 30,000 private housing units that were vacant and rentals have stayed unchanged from 2Q17, after falling by a cumulative 12.5% since 3Q13.
“With slower population growth and relatively high vacancy rates, there is considerable uncertainty as to whether the new supply coming on stream can be fully absorbed by the market,” says MAS.
MAS also reminded developers to take into account the upcoming supply available for sale and for occupation when bidding for land while banks should ensure property appraisals remain realistic and substantiated.
In other areas highlighted in the review, MAS says trade-related companies have shown signs of recovery, supported by upswing in the external environment.
While stress test shows most companies are able to withstand interest rate and earnings shocks, they should continue to guard against potential balance sheet vulnerabilities, as higher interest rates could weigh on debt servicing ability.
And while local banking groups have strong capital and liquidity positions, well above MAS regulatory requirements and MAS’ stress test results underscore the resilience of the banking system, banks should continue to maintain strong credit underwriting standards and actively monitor their borrowers’ financial health, especially clients in the marine and offshore engineering sub-sector.
Banks should also stay vigilant in managing their foreign currency funding risks as they expand in the region.
This story, written by PC Lee, first appeared on The Edge Singapore.