Real estate investment boomed given easy bank credits Sources: NESDB, BoT, Standard Chartered Research
4 Saving-investment gap in negative territory due to over investment Sources: BoT, Standard Chartered Research The current account balance, 1979-2009
5 Double digits interest rates locally under fixed exchange rate Before July 1997, Thailand adopted the pegged exchange rate regime Under the pegged FX system, FIs borrowed cheap S/T USD and swapped it into THB A shift in FX regime to the floating system in July 1997 Sources: BoT, Standard Chartered Research
Hong Kong property sector Property prices by segment, vs. previous peakAffordability deteriorating, but still manageable Sources: CEIC, Centraline, Midland, Standard Chartered Research
Banking system stability Improving asset quality in banks’ balance sheetNegative equity peaked in 2003 Sources: CEIC, Standard Chartered Research
Economic performance – throughout the cycles Hong Kong has experienced 3 recessions after 1997Unemployment rate – still low in historical standards Sources: CEIC, Standard Chartered Research
Hong Kong property measures – relaxation period Sources: Bloomberg, Standard Chartered Research Chief Executive Tung Che Hwa announced the 85,000 housing units production target Introduction of the Home Starter Loan Scheme Introduction of the Tenants Purchase Scheme – to assist residents to purchase public housing Incorporation of the Hong Kong Mortgage Corporation to develop Hong Kong's secondary mortgage market 1998 Introduction of mortgage interest deduction Temporary suspension of land auction Expansion of the Hong Starter Loan Scheme, and relax applicability requirement to cover residence in public housing Cancellation of the Sandwich Class Housing Scheme Relax pre-sale restriction of residential properties Introduction of 85% mortgage insurance scheme Restarted land auction in April 1999 Proposal to increase stamp duty for properties of value above HKD3mn 1997 1999 Temporarily suspension of Home Ownership Scheme, units built were converted into public rental housing Chief Executive Tung Che Hwa announced abolition of the 85,000 housing units production target in July 2000 2000 Further relaxation of anti-speculative measures Temporarily suspension of Home Ownership Scheme for another 10 months Introduction of the scheme for 100% refinancing of mortgages in negative equity 2001
Hong Kong property measures – relaxation period Sources: Bloomberg, Standard Chartered Research Reintroduction of Home Ownership Scheme Introduction of the Home Assistance Loan Scheme to replace the Home Starter Loan Scheme. The scheme provides home purchase assistance towards down-payment and related expenses in the form of interest-free loan or monthly mortgage subsidy Secretary for Housing, Planning and Lands Michael Suen introduced 9 measures to support the housing market in November 2002 Cancel regular land auction, suspend land supply in the application list for 1 year Suspend auction of projects held by the two rail companies MTRC and KCRC for 1 year Supply of public rental housing to be driven by the market Abolishment of the Home Ownership Scheme New interest-free loan programme for low income families Abolishment of Home Purchase Loan Scheme Abolishment of the Tenants Purchase Scheme Relax redevelopment requirements for old residential buildings Relax internal subscription restrictions for private property projects 2002 Stop application for Hong Assistance Loan Scheme in 2003 Resume land sales in 2004 Relax down-payment limits to 95% in 2004 Reduced stamp duty of properties value between HKD1-2mn to fixed amount of HKD100 2003-2007
Macro prudential measures to contain the risk of housing bubble Sources: Bloomberg, Standard Chartered Research Loan-to-value ratios for mortgages on properties valued at HKD 20m or more cut to 60% from 70%. Mortgage for properties valued at below HKD 20m capped at the lower of HKD 12m or 70% LTV. Oct 23, 2009 LTV cut to 60% for properties valued at HKD 12mn or more, or non-owner-occupied properties. Mortgage for other properties capped at the lower of HKD 7.2mn or 70% LTV Debt servicing ratios (DSRs) of mortgage applicants capped at 50%, and 60% if mortgage rates were to rise by 200bps. The government offers 3 new sites for auction in 2010, increases land supply in the application list in 2011 and 2012, identifies over 20 hectares of rural land for conversion to residential use. To limit speculation, cancellation fees raised to 10% of deposits from 5%, and banned the resale of unfinished new homes before transactions. Oct 23, 2009 Government pledged to supply 61,000 private residential flat over 3-4 years Temporarily excluded real estate investment from the Capital Investment Entrant Scheme Introduced a new "rent-to-buy" scheme and tightened disclosure of usable areas of buildings. Oct 23, 2009
Appendix – Regulatory framework of licensed banks in Hong Kong Sources: Bloomberg, Standard Chartered Research Liquidity Capital Adequacy Reporting Minimum monthly average liquidity ratio of 25%, calculated as the ratio of liquefiable assets (e.g. marketable debt securities and loans repayable within one month subject to their respective liquidity conversion factors) to qualifying liabilities (basically all liabilities due within one month). Minimum CAR of 8%, but the Monetary Authority may under section 101 of the Ordinance increase the minimum ratio to not more than 16% Regular statutory returns cover information on assets and liabilities, profit and loss, capital adequacy (in respect of credit risk, market risk and operational risk), liquidity, large exposures, loan classification, foreign exchange position, interest rate risk, and include a certificate of compliance with various requirements under the Banking Ordinance. Submission of returns is normally made each month or quarter.
Private residential transaction value now well exceeds 1997, but still below 2007 Sources: Standard Chartered Research, CEIC
What was done in 1997? The government tried to stem this bubble by increasing land sales to increase the supply of residential units. And it also introduced more draconian measures to curb speculation including; Housing loans limited to 80% (from 90%) for property purchase Capital gains tax from the sale of properties bought within 3 years Additional stamp duty within 3 years of purchase of properties for sellers Stamp duty for buyers of sales and sub-sales of uncompleted properties Foreigners were disallowed from taking housing loans Permanent residents were limited to only one housing loan Under the weight of the tightening measures combined with the impact of the onset of the Asian Financial Crisis, the property market subsequently tanked. The private residential property index peaked at 181.4 in June 1996 and contracted for the next 2 and half years by nearly 45% from the peak.
What is being done now? In its management of asset price inflation, the Singapore government announced 3 batches of cooling measures for private and public residential property market aimed at curtailing demand and expanding supply. Even as the economy was still on the mend, the government implemented the first set of benign anti-speculative measures on 14 September 2009: Reinstatement of the Confirmed List for the 1st Half 2010 Government Land Sales (GLS) Programme. Removal of the Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL), with effect from 14 Sep 2009. Non-extension of the Jan 2009 Budget assistance measures for the property market when the measures expire. On 19 February 2010, the government introduced the 2nd set of measures: Lowering the Loan-to-Value (LTV) limit to 80% for all housing loans provided by financial institutions Introducing a Seller’s Stamp Duty (SSD) on all residential properties and residential lands that are bought after today and sold within 1 year from the date of purchase On 30 August 2010, the Singapore Government announced the 3rd set of measures: lower loan-to-value (LTV) for second mortgages of 70% from 80%; increase cash down payments for second mortgages to 10% from 5%; apply Seller Stamp Duty for properties sold within 3 years of purchase from 1 year; higher income ceiling for public housing Design-Build-Sell-Scheme (DBSS) flats to S$10,000/household from S$8,000/household; increase public housing supply to 22,000 units in 2011 from 16,000 units in 2010; tighten public housing rules to ensure public housing is primarily for owner occupation, discouraging investment in public housing for rental yield.
Singapore private property price index BEFORE the anti- speculative measures implemented in May 1996 Forecasts Source: Real Estate Developers' Association of Singapore (REDAS)
Singapore private property price index AFTER the anti- speculative measures implemented in May 1996
A super-cycle of world GDP growth Sources: Maddison, IMF, Standard Chartered Research 1820-1870: 1.7% 1870-1913: 2.7% 1913-1946: 1.7% 1946-1973: 5.0% 1973-1999: 2.8% 2000-2030: 3.6%
Emerging markets dominate by 2030 Nominal GDP 2010, USD 62trn % of global Nominal GDP 2030, USD 309trn % of global Sources: IMF, Standard Chartered Research
Monetary conditions are very loose Note: This map is for illustrative purposes only and is based off 3 month interbank rates minus annualised CPI; Source: Standard Chartered Research -1.6%-0.4% -0.9% -2.1% -1.9% -0.2% +2.0% +2.2% -2.6% +1.8% -0.8% Select economies real interest rates %