UOB’s non-performing housing loans soared to 34.2 percent in Q2 2014, or its highest level since Q4 2004, reported the media.
The sharp spike surprised Maybank Kim Eng given the perception that UOB is one of Singapore’s more conservative home lenders, with only a slight year-to-date correction in Singapore’s house prices.
“We understand its NPLs were isolated to a group of borrowers who had invested in Turquoise, a high-end condominium project in Sentosa,” said Maybank in a report.
URA data showed that two units there changed hands in Q2 2014 at 45 percent discount to their launch prices.
The report noted that the transactions “stoked fears that it is a matter of time before default cases become widespread, undermining Singapore banks’ profitability that has been propped up by low charge-off rates.”
To ascertain sentiment on the Sentosa micromarket, Maybank examined recent transactions of non-landed properties there.
It found that there are nine condominium projects in Sentosa. The first four, launched during the nascent recovery of Singapore’s property market in 2004 to 2005, had an average selling price of below $1,600 psf, while the remaining five, which were launched later, were priced above $2,600 psf.
“In our view, the large losses at Turquoise can be partially explained by the project’s higher launch price,” said Maybank.
Notably, Turquoise’s launch price of $2,605 psf is about 75 percent higher than the average price at The Oceanfront ($1,360 psf) and The Coast ($1,592).
“These two were launched one year ahead of Turquoise. This could mean that higher-priced projects at Sentosa are at greater risk of a price correction,” said the report.