Singapore banks' mortgage loans to grow by 8% in 2013

Thanks to natural new home buyers and HDB upgraders.

According to DBS, despite several rounds of cooling measures, residential property demand remains firm and prices continue to edge up. The MAS stated that the ABSD and LTV rules are temporary and will be reviewed in future depending on market conditions.

Here's more from DBS:

These measures are effective 12 Jan 2013. Measures relating to Executive Condominiums and HDB owner occupation rules for PRs are likely to be permanent.

From 1 Jul 2013, there will be tighter terms for HDB loans and use of CPF funds to purchase HDB flats with less than 60 years remaining lease. The government is  also introducing a seller’s stamp duty (5-15%) for industrial properties sold within three years of purchase on or after 12 Jan 2013.

Combined impact of latest and Oct 12 measures likely visible after 1Q13. Housing loans grew 15.1% y-o-y in October and 16.1% in November (Sep 12: 14.5%) despite the October measures. We expect a slight moderation in housing loan growth in December, although that could be seasonal.

We were waiting to see the impact of the Oct 12 measures in 1Q13 but with the new measures, the combined impact may only be visible towards end 1Q13 or early 2Q13.

Based on previous instances, mortgage applications fell over 2-3months upon the introduction of such measures, but subsequently normalised.  Since 2010, housing loan growth had peaked at 23.4% in Aug 10.

Measures introduced in Jan-11 saw housing loan growth decline from 23% y-o-y to 14.5% y-o-y in Sep 12. The low interest rate environment had kept mortgage rates low, which continued to drive demand for housing loans and residential properties.

Housing loan growth will moderate. We expect housing loan growth to be supported by drawdown of mortgage applications over the next 1-2 quarters, but gradually drop after that. We forecast mortgage loans will grow by 8% in 2013, noting that there is still a market for natural new home buyers and HDB upgraders.

In 3Q12, DBS, OCBC and UOB’s mortgage to total loans stood at 21%, 26%, and 29%, respectively. Each grew mortgage loans by 8%, 18%, and 15% y-o-y, respectively, in the quarter.

Still prefer OCBC to UOB. We still prefer OCBC because it has stronger ability to derive cross-selling opportunities from Great Eastern and Bank of Singapore. UOB has the largest mortgage exposure and there may be near-term pressure on the share price.