SINGAPORE Singapore home prices rose for a fifth straight quarter in the three months to June, and analysts said owners and developers of private apartments in the outer suburbs appear most at risk should the property market correct.
Singapore's central bank on Friday introduced rules to cap a property buyer's monthly payments at 60 percent of income in a bid to stabilize the housing market and to ensure those buying homes would not be caught out by a rise in interest rates.
Based on flash estimates released by the Urban Redevelopment Authority (URA) on Monday, prices of apartments in Singapore's core central region, which includes the posh Orchard Road district popular with foreign investors, have risen by 49 percent since the end of the global financial crisis in 2009.
In contrast, prices of homes outside the central region, which are areas more popular with ordinary Singaporeans on lower budgets, have increased by 70 percent.
Wilson Liew, a property analyst at Maybank Kim Eng, said the large majority of property transactions in recent quarters have been in areas outside the city-center, whereas activity in the core central region has been muted.
"Our view is that the mass market residential segment is the most vulnerable to downside price pressure," he said.
Shares of Singapore property developers fell on Monday on concerns the latest government measures would crimp demand for apartments, with Southeast Asia's biggest real estate company Capitaland Ltd down 1.6 percent by 0240 GMT and City Developments Ltd dropping 1.2 percent.
PREVENTING A BUBBLE
National Development Minister Khaw Boon Wan, in remarks reported by local media on Monday, said the tougher rules were aimed at property investors rather than potential home owners.
"It's not really a cooling measure as such... It is a structural measure which is good to ensure a more stable property market," he told the Straits Times newspaper, adding that current low interest rates are not sustainable.
"We do have buyers stretching themselves, buying second or third properties," Khaw said.
The URA flash estimates showed private residential property prices rose 0.8 percent in the second quarter from the first three months of the year, accelerating from the preceding period's 0.6 percent gain.
The rise in the index hid a divergence in the housing market, however, as prices of non-landed homes in the core central region fell, while prices outside central region rose 3 percent quarter-on-quarter, more than double the previous quarter's 1.4 percent pace.
Maybank Kim Eng said in a report the new measures will have a relatively muted effect on local banks, since the average total debt servicing ratios of their customers is around 40-50 percent, well below the 60 percent limit.
"While some cooling off of property loan approvals cannot be ruled out, we expect the impact to be limited," it said of Singapore lenders DBS Group Holdings Ltd, Oversea-Chinese Banking Corp and United Overseas Bank Ltd.
Barclays said in a recent report that Singapore property prices were vulnerable to a sharp rate increase after three years of super-low interest rates due to quantitative easing measures by Western central banks.
The flush liquidity could reverse in coming months, however, amid signs that the U.S. Federal Reserve is preparing to slow down its bond buying program.
Barclays said that should mortgage rates rise by 200 basis points within a short period, private residential prices in Singapore could fall by up to a quarter.
Singapore's 10-year bond yield has risen by more than a percentage point since the start of the year to around 2.5 percent currently, from around 1.3 percent at the end of 2012, following the upward trend in U.S. yields.
But mortgage rates, which in the AAA-rated city-state are tied to short-term interest rates, have only edged up slightly, with the three-month interbank rate little changed from the start of the year at around 0.4 percent.
(Reporting by Kevin Lim; Additional reporting by Anshuman Daga; Editing by Kim Coghill)