Singapore banks brace for more delinquent property loans

As shoebox flats flood the market.

The luxury residential sector has been the main culprit behind the recent spike in non-performing property loans, particularly for UOB and OCBC. But analysts warn that the anticipated flood of small-format suburban units will trigger a new wave of NPLs, with all three banks equally at risk.

According to CIMB, sales of shoebox units peaked in 2012 to 2013, with most units due for completion this year. Shoebox units were bought typically as investments by locals, but these buyers will have a hard time selling or renting the flats out on back of the current lacklustre property market.

“We reiterate that transactions of large-sized, luxury properties peaked in 2011 while the volume of total property transactions only peaked in 2013 as buying filtered to suburban shoebox units. By then, all three banks were roughly equally exposed. 2014 was the year of luxury property NPLs (UOB and OCBC most at risk) but 2015 onwards will be the year of suburban shoebox property NPLs, for which all banks are almost equally at risk,” stated CIMB.