Will Singapore’s MAS match HKMA’s risk weighting move in property loans? HKMA order banks to set the risk weighting for new home loans at a minimum of 15% to help cushion against any drop in residential property values Vs Spore’s 10%, lowest in the world

Will MAS match HKMA’s risk weighting move?

Bloomberg News reported late last month Deutsche Bank analysts predicting that home prices in Hong Kong could fall by up to 20 per cent in the next two years.



Bloomberg News reported late last month Deutsche Bank analysts predicting that home prices in Hong Kong could fall by up to 20 per cent in the next two years. The forecast came after major banks in the city, including HSBC and Standard Chartered, raised their home loan rates by 25 basis points in response to tighter risk rules imposed by the central bank in February. According to some property analysts, the rise in home loan rates may finally cause the housing market to cool where other measures, in particular, higher additional stamp duties, have failed to do so. On Feb 22, Hong Kong Chief Executive Leung Chun-ying doubled the stamp duty on all property transactions higher than HK$2 million (S$319,000).

However, what was not as well-publicised as the stamp duties was the Hong Kong Monetary Authority’s (HKMA) order to banks to set the risk weighting for new home loans at a minimum of 15 per cent to help cushion against any drop in residential property values. Usually, banks decide on the riskiness of their own assets, which in turn affects the capital they set aside. Depending on the banks’ own internal risk weightings before the minimum percentage imposed by the HKMA, significantly more capital may be needed to be set aside. The impact of the higher risk weightings has now worked itself into the market, leading to higher housing loan rates. One key factor driving home purchases — not just in Hong Kong but elsewhere in Asia — has been the sustained low mortgage costs. “Banks were mispricing their retail mortgage loans. Now, with the new measures from the HKMA, they will be forced to correct it,” the Bloomberg report quoted DBS Hong Kong Chief Executive Sebastian Paredes as saying.

The higher mortgage costs are expected to hit sales and developers are responding. Cheung Kong Holdings, the developer controlled by Hong Kong’s richest man Li Ka-shing, cut prices at one of its projects by 11 per cent on March 5.

Now that the HKMA has taken such a move, might a similar measure be imposed by the Monetary Authority of Singapore (MAS)?

After all, both cities have taken turns to impose rather similar cooling measures in recent times.

The Singapore Budget has already raised the holding costs for investors. Under revised rules announced in February, investment property owners face higher tax rates on their assessed annual values from next year. The higher rates would apply even if the units are left vacant.

Previously, developers and investors could apply for tax rebates for unleased or vacant units.

My opinion is that the MAS may be saving further measures for later, depending on the outcome of the January curbs as well as other measures contained in the Budget.

They may be part of more measures in the MAS’ arsenal hinted at by Finance Minister Tharman Shanmugaratnam in a Bloomberg TV interview when he said property prices needed to stabilise further and that Singapore “can prevent a real bubble from being formed”.


Colin Tan is head of research and consultancy at Chesterton Suntec International.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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