The Monetary Authority of Singapore (MAS) placed more scrutiny on the way banks are funding property development projects, by gathering more data from them via a new survey sent out last month, reported The Business Times.
The move comes as developers made a slew of aggressive land deals last year.
Industry players believe that the Singapore central bank is giving more attention to the collective and government land sales (GLS) tenders due to the steep loan-to-value (LTV) ratios on development loans in some cases.
Sources revealed that information sought includes the size of banks’ exposures as well as details of the loan facilities extended to each project such as the LTV ratios and key covenants.
MAS is also seeking more details on loans with higher LTVs and which require additional covenants.
“MAS expects banks to adopt sound credit underwriting standards in their lending practices. As part of our ongoing surveillance and supervisory work, MAS collects data from banks to monitor their lending practices to specific sectors from time to time,” said a spokesman for MAS.
He noted that banks should continue to review their valuation practices while maintaining prudent underwriting standards “to ensure that property appraisals remain realistic and substantiated”.
Meanwhile, some market watchers believe that the government can douse the feverish land bids by developers by setting borrowing limits on development projects.
“It won’t be surprising if the MAS follows in the footsteps of Hong Kong Monetary Authority (HKMA),” said one of the sources.
In a bid to rein in risks in the booming property market, the HKMA reduced the caps on bank loans extended to developers from 1 June 2017.
Derek Tan, senior vice-president for group equity research at DBS, noted that favourable financing has allowed developers to achieve high returns on equity (ROE) on property development projects.
“If there’s greater prudence in the LTV ratio, developers will need to come up with more capital. Their ROE will drop, and this will cause developers to be more cautious when bidding for land.”
This article was edited by Keshia Faculin.