Cracks in Singapore’s Credit and Housing Bubble?

Interestingly, mainstream media seems worried over signs of Singapore’s deflating housing markets.

Last year I posted here that Singapore’s central bank the Monetary Authority of Singapore warned of a domestic debt bubble.

Apparently the diffusing property slowdown appears to be raising anxiety over potential escalation of credit risks

From Yahoo.com (bold mine)

Local rates have already started ticking up. Sibor, or the Singapore interbank offered rate, used as the basis for setting mortgage and other loans, climbed around 15 basis points in early January, to its highest since April 2010 after years of stability, Maybank (Kuala Lumpur Stock Exchange: MBBM-MY)-Kim Eng noted in a report this week.

The bank estimates a one percentage-point rise in Sibor increases monthly mortgage payments by 12 percent, under certain conditions. It expects Sibor will rise to 1.0 percent by the end of this year and 2.0 percent by the end of 2016, compared with 0.46 percent at end-2014.

While the rate is still relatively low -- the three-month Singapore-dollar Sibor was at 0.639 percent Thursday -- analysts expect it could continue to push higher. They lay the rise at the feet of U.S. dollar strength against the Singapore dollar (Exchange:SGD=) spurring fund outflows from the city-state, a situation unlikely to reverse anytime soon. Once the U.S. Federal Reserve begins a rate hike cycle, Sibor is likely to push even higher, they said…

Whether most households can handle a big bump in mortgage payments will be a key policy test. Singapore's central bank, the Monetary Authority of Singapore (MAS), introduced a total debt servicing ratio (TDSR) in mid-2013 to help contain property prices and limit how much debt households could take on.

Here is the USD-SGD

The USD-Singapore trades at 2010 highs

Yet the debt numbers:

Consumers' debt is still growing, rising 5.6 percent on-year in the third quarter, although that's down from an average 9.2 percent over the past five years, the MAS said.

Housing loans accounted for around 74 percent of household liabilities in 2014's third quarter, the data show.

More signs of the emergence of deflation…

Despite a lot of handwringing forecasts for property price declines of as much as 20 percent, official data show private residential prices fell just 4 percent in 2014, although the number of transactions fell around 50 percent in the year-to-November. But analysts generally expect property price declines to continue this year.

Other cracks have begun to show in the property market, such as indications some buyers may have found ways to skirt the TDSR to get approval for larger mortgages. This week, local bank UOB(Singapore Exchange: UOBH-SG) filed a 181 million Singapore dollar (around $136 million) lawsuit against a unit of Indonesian company Lippo Group and some individuals, claiming a conspiracy to obtain inflated mortgages for 38 units at a luxury development on tony Sentosa island. All but one of those 38 loans have defaulted. Lippo has reportedly denied involvement in a conspiracy…

However, lower property prices will limit financially troubled households' ability to sell their homes as a means of exiting debt.

Another worry is the around 3 percent of credit card holders with unsecured debt greater than their annual incomes, although the MAS plans policies this year to prevent these people from getting further credit.

After the credit fueled boom, the legacy will always be the problem of debt, debt and debt…

This reports says Singapore’s banks are vulnerable to a housing deflation. From Nikkei Asia (bold mine) 

The slow-down in Singapore's property market has reduced high-end condominium prices and raised concerns that major local banks could be vulnerable to a surge in non-performing housing loans.

According to Singapore's Urban Redevelopment Authority, the price of private residential properties dropped 4% in 2014. Maybank Kim Eng notes that loan defaults have concentrated mostly among luxury homes which are more popular with foreign investors, particularly those located near Orchard Road, Singapore's retail hub, and Sentosa Island, a vacation destination with sandy beaches and resort hotels.

Among the three largest Singaporean banks, United Overseas Bank (UOB) is the most exposed on Sentosa. The report indicated UOB's non-performing housing loan volume has risen 61.4% since the end of 2013…

Other vulnerable banks…

Despite this case, Maybank Kim Eng concluded that among the three largest Singaporean banks, Oversea-Chinese Banking Corp. (OCBC) is most at risk in the event of a meltdown in the housing market, followed by UOB. DBS Group is least at risk.

Although OCBC's exposure to the luxury properties most favoured by foreigners is lower, the bank lent more heavily overall to property buyers than its competitors from mid 2009 to 2012 when prices in Singapore were breaking records and "speculation was high."

Here are several questions: what happens when Singapore’s housing and debt deflation intensifies? Will Singapore’s problems be isolated to the property sector and to the city state? Will there be no contagion via trade and financial linkages with the region or the world?

How about Singapore’s stocks? Will housing-debt deflation be vented on stocks?

So far Singapore’s stocks appear to be ignoring such risks.