It could be peace before the perfect storm. Following the release of a decent set of financial result, the DBS share price has stalled somewhat. Rightfully, investors should have plenty to cheer about as the rising interest rates should provide power tailwinds for the bank’s business. Nonetheless, in today’s context, things aren’t always so straightforward.
Being the largest lender in Singapore, DBS’ business is sensitive to new property cooling measures. In the December 2021 cooling measures, the loan-to-value for HDB loans was tightened. However, it should be noted that round of cooling measures did not affect financial institution loans. As such, DBS housing loan portfolio has been resilient so far.
Fast forward to August 2022, the world has changed so much. Yes, the pandemic is still around but the invasion of Ukraine by Russia has created plenty of market chaos like never before. On the other hand, the US Federal Reserve is struggling to tame raging inflation by hiking interest rates. Despite these uncertainties, Singapore property market continued to defy gravity, with property prices sky-rocketing.
According to URA, prices of private residential properties increased by 3.5% in 2nd quarter of 2022, compared with the 0.7% increase in the previous quarter. As of July 2022, there were 12 collective sale deals totaling about $3.5 billion, more than the $2.2 billion seen in 2021. Question now is whether the red-hot property market would lead to another round of new property cooling measures? If so, what would be the impact on DBS share price?
If you look at the above graph, the property price index has been increasing on a break-neck pace for the past two years. Prior to the recent bull-run, the 2018 property cooling measure had helped to moderate the rate of increase. Henceforth, if there is no intervention being made, chances of a property bubble being formed are high. Furthermore, the recent spike in interest rates had not dampen the demand for private housing. Developers sold 2,397 private residential units in 2nd quarter of 2022, compared with the 1,825 units sold in the previous quarter.
Incidentally, the 2018 property cooling measure came on the back of a series of US Federal Reserve interest rate hikes from 2015 to 2018. Will history repeat itself? In that episode, DBS share price had turned bearish for several months, falling from $27 in July 2018 to $23.50 in December 2018. In my assessment, a new property cooling measure that affects bank loans may send DBS share price to a low of $27.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in DBS share before. Whether DBS share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
DBS share price faces turbulences
To be frank, I did not expect the narrative for bank stocks to be so [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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