SUBSEQUENT RISK: The recent decision by Singapore’s government to temper
overheated property prices will most likely put a halt in the Malaysian
banks’ loans growth, in particular those with exposure to the neighbouring market.
KUCHING: Singapore’s recently-announced hikes on property stamp duty will most likely impact Malaysia’s loans growth, particularly homegrown banks with exposure in the neighbouring retail market.
Though the move would not significantly affect domestic banks’ total loans, players like CIMB Group Holdings Bhd (CIMB), Malayan Banking Bhd (Maybank) and RHB Capital Bhd (RHB Capital) – all of which had exposure in Singapore – would witness a pullback in its mortgage growth.
“Altogether, there will be a double-whammy effect on both demand and prices in the Singapore property market, hence the impact on credit growth,” opined the research team at Affin Investment Bank Bhd (Affin IB).
It also believed that the luxury property market would be the worst hit, while the mass-housing market would be moderately impacted.
Adding further, Affin Investment stated that industry observers would expect a sharp drop in property sales and prices, as both developers and buyers would adopt a ‘wait-and-see’ attitude.
“The market is expected to stay soft for at least the next six months with demand expected to gradually recover as developers would be adjusting prices down or enticing buyers by absorbing the additional buyer’s stamp duty,” it said.
To recap, sudden hikes in Singapore’s property stamp duty followed several new measures such as a 10 per cent hike on foreigners and corporate entities purchasing private homes in Singapore, as well as a three per cent hike on permanent residents buying their second or subsequent homes.
Additionally, the city state government also decided to advocate a three per cent hike on Singaporeans buying their third residential property or subsequent homes.
The situation was in view of the large flow of investment driven into the country’s property market, premised on its low interest rates as well as the large pool of external liquidity and strong overseas buying interest.
The move was aimed at tempering overheated property prices, of which to some was beyond affordability.
“The additional buyer’s stamp duty should help cool demand and avoid the risks of a major destabilising correction further down the road on the economy and the banking system,” added Affin IB.
According to Singapore’s Ministry of National Development, the purchase of private residential property by foreigners made up 19 per cent of the total market as at the middle of this year. Foreigners’ presence has been more visible in the prime and mid-prime districts.
On the impact of the move on loan growth for Malaysian banks. Affin IB noted that longer-term downside risk on these banking units in Singapore would also depend on whether or not Singapore could maintain its status as a major property investment destination, given the rivalry from Hong Kong and China.
“Upside risk could be supported by the diversion of activity to the commercial and industrial segments, which not affected by the stamp duty hike,” it suggested.
To date, CIMB has a 5.6 per cent loan exposure to Singapore’s retail market – a figure equivalent to RM10.3 billion – while Maybank has a 4.7 per cent portion with a total of RM4.7 billion in mortgages, and RHB Capital with a 4.3 per cent exposure that is equivalent to RM4 billion.
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