Cooling measures curbed home prices with ‘some success': S&P Global

The total debt service ratio has frozen credit growth, it said.

Cooling measures and macroprudential policies have had some success in controlling house price inflation in Singapore compared to other Asian cities, S&P Global Ratings said.

According to a report, residential markets in Australia and China are moving into a cyclical slowdown, whilst Singapore’s property market is starting to pick up.

“Singapore is an outlier,” S&P Global economist Vishrut Rana said, as several indicators move from below trend to above trend. “A recent pickup in housing demand following strong economic activity in Asia has contributed to the improvement in the property market,” he added.

Private housing in Singapore is showing price increases as global economic performance improves, Rana said, as private housing tends to be sensitive to foreign demand. Public housing is still undergoing mild price declines, but he observed, residential households in the private market might substitute into public housing if private prices continue rising.

For the first quarter, transactions jumped 5.4% above the trend even if house price inflation climbed by 5.6%.

In Singapore, tight macroprudential policies and subsidised public housing have been partly responsible for keeping credit growth down. “In particular, the total debt service ratio that limits interest expense to income ratios for households has reduced credit growth,” Rana said.

Credit from mortgages was flat by the end of Q4 in 2017. Housing starts was at 21% by the end of the Q1 in 2018.

Singapore’s debt-to-equity ratio trended 42%, however, earnings interest cover (EIC) is low at 2.56.

Singapore real estate corporates have low EIC ratios despite moderate levels of leverage, as probability has fallen due to the tight house price cooling measures. “They have responded by reducing leverage over time which has improved their overall credit profile,” Rana added.

Meanwhile, Hong Kong has stringent price-cooling measures that have not been effective in slowing house price inflation due to strong housing demand. Australia and New Zealand continue to rely mostly on macroprudential measures to prevent risky lending activity, S&P Global added.