8 things to know about the real estate market from MAS’ financial stability review

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The Monetary Authority of Singapore published their annual Financial Stability Review report in Nov.

The publishing of the report started in 2004 and shares the MAS’ views of Singapore’s and the global economy.


What is contained in there that is relevant to the property market?

This post lists out 8 things that are relevant to real estate and you should keep an eye out for, especially if you’re looking to invest in the market as the financial stability report states some things that aren’t exactly welcoming to property investors.

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Household balance sheets are strengthening

MAS mentions that household balance sheets are strengthening, but households should remain financially prudent. The main drivers of the strengthening balance sheets are growth in financial (stocks, equity market etc) and property assets.

While the overall employment outlook is expected to improve in 2018, wages are not expected to increase rapidly as the existing slack in the labour market will take time to be absorbed.

MAS cautions households to stay financially prudent.

Recent developments in the property market pose risks to stability

The wording used by MAS seems to show that they are very concerned with developments in the market. It appears that MAS is taking a forward view and are trying to determine the impact of activity by developers in the en-bloc market.

MAS mentions that the private residential market has picked up in recent quarters, underpinned by an improvement in buyer sentiment and low interest rates.

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Developers have also been active in Government Land Sales (GLS) and the en-bloc market.

The development of en-bloc and GLS sites should more than double the number of units available for sale in the near term. In the medium term, the stock of private housing will increase.

For property investors hoping to still buy a unit in hopes of being en-bloc’d, the Financial Stability Report is likely to reduce the chances of that.

Developers are going to take a more prudent approach to their forecast and underwriting, and that would mean some of the asking prices of en-bloc-able units will not be met.



With slower population growth, there is considerable uncertainty as to whether existing vacancies and the new supply coming on stream can be fully absorbed by the market. If not matched by occupation demand, a supply imbalance could result and weigh on rentals and property prices.

MAS also mentions that developers should take into account the significant rise in the number of private housing units available for sale in the near term when bidding for land.

Furthermore, MAS cautions that prospective buyers should remain prudent in their buying decisions. The en-bloc wave seems to be slowly being punctured.

There is ample supply to meet occupation demand.

Therefore buyers should carefully assess their ability to service their mortgage debt in the long term, taking into account potential interest rate increases and uncertain rentals.

Prices registered a slight increase in the latest quarter

Drawing from URA data, overall private residential property prices have fallen by a cumulative 11.0% since Q3 2013. These last 4 years have been painful for property owners who had to endure the release of URA’s quarterly results and find that their property value is actually falling.

However, that has changed with the first uptick in Q3 2017.

After declining at a gradual pace for 15 consecutive quarters, prices registered a 0.7% increase in Q3 2017.

Price trends have been broadly similar across the regions, with prices in the Outside Central Region (OCR), Rest of Central Region (RCR) and Core Central Region (CCR) declining by 9.4%, 11.1% and 10.8% respectively from their peaks in 2013.

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In the latest quarter, prices in the OCR, RCR and CCR rose by 0.8%, 0.5% and 0.1% respectively.

QoQ change in private property price index
QoQ change in private property price index
Private property price index by region
Private property price index by region

Buyer sentiment has improved in recent months. This was reflected in an increased take-up at recent project launches and higher resale activity.

Total transactions in the first ten months of 2017 were 54% higher than that recorded over the same period last year.

However, sub-sale transactions, a proxy for speculative activity, have remained low and broadly unchanged.



This was mainly because of the imposition of the seller stamp duty that made it very punitive for new property owners to flip their property to the next person.

In view of the significant reduction in the number of such speculative sales since the introduction of Seller’s Stamp Duty (SSD) in February 2010, the Government shortened the SSD holding period from four to three years and lowered the SSD rate by four percentage points at each tier in March this year.

Also read: Top 5 cheapest and most expensive Singapore properties

The increase in transaction activity has occurred amid continued low interest rates. The three-month SGD Singapore Interbank Offered Rate (SIBOR), a commonly-used reference rate for housing loans, remains low although it has increased slightly over the past year.

The three-month SGD SIBOR stood at 1.1% in mid-November 2017, compared to a peak of 3.6% recorded in 2006.

Number of private residential property transactions
Number of private residential property transactions
Three month SGD SIBOR
Three month SGD SIBOR

Rental market remains weak

Also from URA, though vacancy rates have declined from the peak of 8.9% in Q2 2016, they remain relatively elevated at 8.4% in Q3 2017 compared with 5.2% in Q1 2013 and the historical average of around 6.5% over the past decade.

As at Q3 2017, there were more than 30,000 private housing units that were vacant. Rentals remained unchanged from the previous quarter in Q3 2017, after falling by a cumulative 12.5% since Q3 2013.

Should interest rates rise or rentals fall further, some borrowers could face difficulties meeting mortgage repayments on their investment properties.

Units available for sales are expected to more than double in the near term

Collective sales have ramped up as developers sought to replenish their land banks.

20 residential projects, totalling about 2,900 units have been sold through en-bloc transactions as of mid-November this year, up from six deals in the whole of 2016 and one deal in 2015.

On average then, each project that went through an en-bloc had 145 units, but we know that most of the larger en-blocs like Tampines Court, Eunosville, Royalville, Serangoon Ville and Rio Casa etc had more units than average.

The redevelopment of these en-bloc sites (coupled with supply from GLS sites) could potentially add another 20,000 new private housing units. This will more than double the number of unsold units currently in the pipeline within the next 1–2 years.

Vacancy rates for private residential property
Vacancy rates for private residential property
Private property rental index
Private property rental index

Private housing stock will increase and add to existing vacancies

The development of en-bloc and GLS sites will increase the private housing stock over the next 3–5 years.

Meanwhile, the compound annual growth rate of the population has moderated, from 3.0% (2007–2012) to 1.1% (2012–2017).

Also read: SPH REIT’s stable (read boring) results

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



Should there be insufficient occupation demand for the completed housing units, a supply imbalance could result and place downward pressure on prices and rentals in the medium term.

Pipeline supply of private residential units (incl exec condo) by expected year of completion
Pipeline supply of private residential units (incl exec condo) by expected year of completion

Asset quality of housing loans remains strong

Following increased transaction activity this year, new housing loans have risen to an average of S$3.5 billion per month in the first ten months of 2017, up from S$2.8 billion over the same period last year.

Nonetheless, the growth in outstanding housing loans remains low at 4.0% YoY in October 2017.

Housing loans accounted for 16.4% of total non-bank loans in October 2017, largely unchanged from 17.0% a year ago.

The asset quality of housing loans continues to be strong.

Both loans in arrears and NPLs are low.

The share of loans that are more than 30 days in arrears and NPL ratio were 1.0% and 0.4% respectively in Q3 2017, unchanged from a year ago. MAS’ stress test results indicate that the banking system would be resilient to a sharp drop in property prices of 50% over a three-year period.

This is comforting to hear from the MAS, given that households who are in trouble would be disastrous for the economy.

However, as with all crises, no one knows the extent and impact of a recession in future, and households should be careful even though MAS has mentioned they can withstand a 50% decline in house prices.

New housing loans
New housing loans
Share of housing loans more than 30 days in arrears and NPL housing ratio
Share of housing loans more than 30 days in arrears and NPL housing ratio

Developers, potential buyers and lenders should proceed cautiously

Recent developments in the property market pose potential risks to stability. Developers should take into account the significant rise in the number of private housing units available for sale in the near term when bidding for land.

Also read: 10 most common questions on Singapore REITs

The large upcoming supply could lead to a supply imbalance over the medium term if not matched by occupation demand.

Prospective buyers should therefore remain prudent in their buying decisions.

As a note of caution, MAS has cautioned that buyers factor in potential increases in their debt servicing burdens if interest rates rise and rentals fall given current elevated vacancy rates.



To the banks, they should continue to maintain prudent underwriting standards and review their valuation practices to ensure that property appraisals remain realistic and substantiated.

MAS will continue to monitor market developments and where necessary, take appropriate actions to maintain a stable and sustainable property market.

Will the MAS’s Financial Stability Report put a dent in the en-bloc and residential market?

It remains to be seen with the many en-bloc projects that are in the market presently. The results of en-bloc bids in the next few weeks will provide some color on how the Financial Stability Report has impacted the property market.

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