Published February 14, 2009

Creeping shadow of negative equity grows

Rapid drop in property prices causes more people to owe more than their home is worth

By SIOW LI SEN

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THE proportion of DBS Bank home loans in negative equity jumped 50 per cent to 0.6 per cent in December 2008 from 0.4 per cent in March 2008, reflecting the rapid deterioration in property prices.

Analysts say the trend at DBS - the first of the three local banks to report fourth-quarter results yesterday - will be mirrored at its rivals OCBC Bank and United Overseas Bank.

Negative equity is when people owe more than their home is worth. But borrowers will be relieved to hear that DBS, the nation's biggest home loan provider, will not require top-ups on loans that are current. OCBC Bank also said it does not ask for top-ups on loans when payments are regular.

DBS chief financial officer Chng Sok Hui said: 'No, there is no requirement to top up.'

And at OCBC, head of consumer secured lending Gregory Chan said: 'There are currently no top-up calls made on existing loans with regular instalment payments.'

UOB did not want to comment, citing its blackout period.

OCBC Bank and UOB will report their Q4 numbers on Feb 18 and 27 respectively.

Answering questions yesterday at DBS's Q4 results media briefing, Ms Chng said: 'We continue to monitor the trends of negative equity. We focus on assessing the borrower's ability to repay.'

Ms Chng said that DBS has gone through many down-cycles and in the case of non-performing loans (NPL), 'negative equity has not been a driver'. Negative equity is a function of the property market, she said.

Morgan Stanley analyst Matthew Wilson said negative equity will continue to deteriorate and the NPL cycle is just starting. 'We are only at the beginning. All three banks will show similar trends,' he said.

The proportion of DBS home loans in negative equity fell to a low of 0.4 per cent in March 2008 from 1.8 per cent a year earlier, before jumping to 0.6 per cent in December 2008.

The credit quality of the bank's home loans remains strong, despite this deterioration.

The delinquency rate - defined as overdue for 90 days - rose to 0.11 per cent in December, after falling to a low of 0.10 in March 2008 from 0.24 per cent in March 2007.

DBS also faces some home loan problems in Hong Kong, where its delinquency rate more than doubled to 0.05 per cent in December 2008 from a low of 0.02 per cent in September 2008.

But negative equity in Hong Kong rocketed to 1.7 per cent in December 2008, from zero in March 2008.

Negative equity soared in the aftermath of the Asian financial crisis. In September 2003, it was a staggering 14.4 per cent of total home loans in Singapore. In Hong Kong, it accounted for 20 per cent of home loans at end-2003.