To The Moon

$DBS GROUP HOLDINGS LTD(D05.SI)$ $UOL GROUP LIMITED(U14.SI)$ Singapore Banks/Property: Unscathed from higher rates? Property prices to moderate amid higher interest rates and tighter lending limits but a significant drop is unlikely. We see a slowdown in prices of the Singapore property market to a tune of +1% to -3% in 2023. Given rising interest rates and economic uncertainty, home buyers are likely to turn cautious with Spore’s strong household balance sheet preventing a significant drop in property prices. That said, developers have sold well but are trading at “recessionary levels”. Higher interest rates rein in affordability as mortgage rates cross 4%. On our estimates, every 1% rise in interest rates on a S$1 million loan (30-year tenure) will see a c.S$500 rise in monthly mortgage obligation or c.14%. DBS economists expect SORA to increase to c. 3.5% in 2023. This implies that households could potentially face S$1,000 per month higher mortgage payments on the new rates once loans are refinanced. Buyers intending to purchase or refinance their loans may consider a fixed-rate mortgage to improve visibility on expenses. Households to tighten their belts to cope with higher mortgage repayments; limited risks to banks’ mortgage book on rising interest rates. We believe households are likely to tighten expenses amid rising inflation to cope with heftier mortgage repayments, with many of the new sales in recent years being for own stay/upgrader demand. Banks’ mortgage books have strong buffers with loan-to-values (LTVs) averaging 50-60% in the event of nonrepayments. Unemployment is a bigger driver of declining property prices and mortgage non-performing loans (NPLs). Higher interest rates aside, we believe the mortgage system is stronger with stringent credit underwriting practices and cooling measures in place. Unemployment is a bigger driver of declining property prices, as seen in mortgage NPLs in previous cycles. DYODD @TigerStars