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No alarming rise in property-related foreclosures; bankruptcy applications ticking up

Higher interest rates and a slowing economy can push more businesses in Singapore into insolvency, Mr Tan said.

“Bankruptcy applications could pick up further as a small segment of more vulnerable borrowers face higher risks of financial distress amid higher interest rates and slower economic growth,” he told Parliament.

Bankruptcy applications rose to 959 in the first quarter of this year, higher than the 912 claims made on average in each quarter of 2022, he said, referring to Ministry of Law data released earlier this year.

The ministry’s data also showed that the insolvency applications in the first quarter of 2023 were 22 per cent higher compared with the first quarter of 2022.

Experts believe a high majority of the companies going under are small and medium-sized enterprises that came under increasing pressure from rising borrowing costs as central banks pursue tighter monetary policies to fight inflation.

SINGAPORE - The number of distressed property sales has not hit an alarming rate, but borrowers – both individuals and businesses – should weigh the impact of rising interest rates and slowing economic growth when taking loans, Minister of State for Trade and Industry Alvin Tan told Parliament on Tuesday.

“There has not been a pickup in property-related foreclosures thus far,” Mr Tan, who is also a board member of the Monetary Authority of Singapore (MAS), said in reply to a two-part parliamentary question on whether mortgagee listings as well as bankruptcy applications would rise in view of higher interest rates and a tougher business climate.

Just five commercial and five residential loans led to foreclosures by financial institutions in the first quarter of 2023, compared with an average of four commercial and 12 residential foreclosures per quarter in 2022, Mr Tan revealed.

Still, households with outstanding mortgages will see higher borrowing costs as interest rates rise from “exceptionally low levels” in the past decade, he said.

“With higher rates and increased uncertainty over global growth prospects, MAS continues to urge all borrowers to exercise caution and to ensure that you are able to service your debts when taking on long-term financial commitments, including big-ticket items such as property purchases.”

MAS estimates that about 27,000 home owners with a mortgage from financial institutions refinanced their mortgages in the 12 months from March 2022 to February 2023.

The increase in payments for the borrowers was approximately $240 on average, or about 2 per cent of their monthly income, Mr Tan said.

Meanwhile, the average monthly income of the 27,000 home owners who refinanced their loans had increased by about 10 per cent over the last three years.

This rise in income would have helped cushion the increase in mortgage payments, Mr Tan said.

The Minister of State noted that the use of mortgagee listings as an indicator of households and businesses in distress may be limited.

Mortgagee listings refer to properties that are up for sale after being repossessed by banks or financial institutions due to a loan default.

Mr Tan said the extent of the distressed sales registered could be overstated, in part due to double counting.

“We are not privy to the auction houses’ methodologies, but there are challenges in tracking such listings as there is no central database. For example, a property that is put up for sale may count as several listings as the bank or owner listed with multiple agencies,” he said.