Risk of property oversupply overseas

Mr Wong said in Parliament on Monday (May 11) that if there is an oversupply of properties, investments can lose their value, and it will be difficult to find tenants. 

The Monetary Authority of Singapore (MAS) has warned about the potential risks of property oversupply overseas.

Minister for Culture, Community and Youth Lawrence Wong said this in Parliament on Monday (May 11) in response to a question by MP Lee Bee Wah on how many Singaporeans are individual owners of properties in Iskandar Malaysia, and how are Singapore's banks safeguarded against any major default in property loans to these buyers.

Mr Wong was speaking on behalf of Deputy Prime Minister Mr Tharman Shanmugaratnam, who is also the Chairman of MAS.

Mr Wong said that if there is an oversupply of properties, investments can lose their value, and it will be difficult to find tenants. He spoke about reports in Iskandar and Johor which highlighted aggressive land banking by developers. See Video

"There is indeed a real concern about future oversupply in the property market there and hence the potential decline in value of homes," Mr Wong said. "Based on data from Malaysia's National Property Information Centre, there are around 336,000 new private residential units in the pipeline - more than the total number of private homes in Singapore. So everything that is coming through in the pipeline is already more than the total number of private homes in Singapore."

The data does not include another 1,400 hectares of reclaimed land near the Tuas Second Link that will come on stream from 2020.

Given these indications, Mr Wong said buyers are being more cautious.

Surveys showed that the number of Malaysian properties bought through local real estate agencies dropped from 2,609 in 2013 to 838 in 2014.

Nonetheless, Mr Wong said not all Singapore buyers have recognised the risks involved in overseas property purchases, so MAS and the Council for Estate Agencies (CEA) will continue to step up efforts to raise awareness on this.

For example, the CEA has issued guidelines on what investors in overseas property should look out for. This includes finding out about rules or restrictions in foreign property purchases, ownership, the taxes payable and dispute resolution avenues available in the foreign market. 

Mr Wong said: "At the systemic level, financial institutions in Singapore do not have large exposures to loans for the purchase of overseas properties. In fact, the banks themselves are cautious about financing the purchase of overseas properties. Hence such loans make up only 2 per cent of the housing loan portfolios of the key mortgage lenders in Singapore." 

He added: "In addition, the Total Debt Servicing Ratio (TDSR) framework introduced by MAS in June 2013 requires lenders to assess the debt servicing ability of their customers for all new property loans, regardless of whether the property is in Singapore or overseas.

"All existing debt obligations, including those for overseas property purchases, must be included for such assessments. MAS’ stress tests on banks’ housing loan portfolios indicate that the banks will remain sound even under stressed conditions."

Source: CNA

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