Singapore central bank warns of 'excessive exuberance' in property market

Singapore's central bank warned on Thursday of “excessive exuberance” in the city-state's private housing market, adding that it would take action, if needed, to maintain market stability.

Developers have actively taken part in collective sales tenders for multiple properties and the government land sale programme to replenish their land banks alongside a pick up in market activity, the Monetary Authority of Singapore (MAS) said in its annual financial stability review on Thursday.

Such developments are expected to more than double the number of private housing units available for sale in the near-term, and the stock of private housing will increase over the next three to five years, the MAS said.

The report also urged households to make sure they could service their debt over the long term, and flagged ongoing risks arising from the struggling marine and offshore engineering sector.

“Financial institutions, households and corporates should remain vigilant to the risks highlighted in the report, including the impact of rising interest rates, geopolitical developments, and excessive exuberance in the property market," MAS deputy managing director Ong Chong Tee said in a statement.

Singapore's private home prices rose for the first time four years in the third quarter, helped by a pick-up in the domestic economy, with analysts expecting clearer signs of a property market recovery in 2018.

The development of en-bloc sites and government land sale sites could add 20,000 new private housing units, which will more than double the number of unsold units currently in the pipeline within the next 1-2 years, the central bank said.

“With slower population growth, there is considerable uncertainty as to whether existing vacancies and the new supply on stream can be fully absorbed by the market,” the MAS said.

“Recent developments could pose risks to sustainable conditions in the property market... MAS will continue to monitor market developments and where necessary, take appropriate actions to maintain a stable and sustainable property market.”

The central bank said household balance sheets are strengthening, with net wealth growing 6.6 percent year-on-year in the third quarter, up from 5.8 percent growth a year earlier, due to a rise in financial and property assets.

Household debt grew 3.3 percent in the third quarter from a year earlier, led by housing loans from financial institutions, which increased 4.1 percent from a year earlier, the MAS added.

In the banking sector, the central bank said while overall credit quality has started to improve, banks still face heightened credit risks from the marine and offshore engineering sector.

The non-performing loan ratio for the transport, storage and communications sector has increased to 11 percent, the MAS said, adding that the sector has been negatively affected by persistent weakness in the marine and offshore engineering sector.

Singapore banks have been tested over the last two years as a number of local offshore and marine firms have restructured their debt, having taken a hit from low oil prices and project delays.

The MAS said on Thursday that the asset quality of local banking groups remains healthy, with an aggregate non-performing loan ratio of 1.6 percent in the third quarter.

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