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S'pore property measures put dent on sentiment

Publication Date : 12-10-2012

 

The latest round of cooling measures on October 5 by the Singapore government could dent property-buying sentiments in the near term, according to reports from Credit Suisse and Maybank Kim Eng.

Credit Suisse, in its October 9 report, said the latest measures could change the attractiveness of property as an investment because a third of the Singaporeans purchased properties for investment.

“This could deter demand, with monthly mortgage payments likely to increase 13 per cent to 21 per cent (depending on tenure) although most buyers should be able to absorb the increase. Older investors could opt for longer tenure loans, but they can only buy properties close to half the ticket size of what they could earlier,” the report said.

Developers may also choose to delay property completion, the report added.

The latest round of cooling measures, effective since October 6, capped all new residential property loans, both the Housing and Development Board and private properties, individuals and non-individuals, as well as refinancing loans, at 35 years.

Borrowers also face significantly tighter loan-to- value limits if their loans exceeded 30 years or if the loan period extended beyond the retirement age of 65 years.

Those with outstanding property loans who wish to apply for loan tenures exceeding 30 years or beyond the retirement age of 65 can only borrow up to 40 per cent of the property price.

Those with no outstanding loans can borrow up to 60 per cent of the property value.

A report by Maybank Kim Eng in Singapore shared similar findings.

An October 9 report said the latest measures to prevent a bubble could “nudge mass market property prices towards a 10 per cent correction by end-2013.”

“Marginal buyers are likely to be weeded out if they deem the increase in monthly payments excessive, or if they do not have enough cash on hand for the higher downpayments should they insist on taking loans exceeding 30 years or beyond the retirement age,” the report said.

The measures will have the effect of “tipping mass market segment closer to a correction.”

The measures are expected to have little or no impact on the high- end segment because the wealthy buyers tend not to be too highly geared in the first place.

Singapore-based Jones Lang LaSalle head of residential project sales David Neubronner said the new measures would dent buying sentiments in the private residential market.

“Like all previous measures, there will be a knee-jerk reaction. The market may run again after the dust has settled. There is too much liquidity here and money in the bank is earning almost nothing.

“The public residential market will not be affected as the dynamics are different and the current housing shortage for heartland locals and foreigners have yet to be solved, at least until 2014,” he said.

Neubronner said the measures were a result of the third round of quantitative easing by the United States and the influx of cheap money was a concern for Singapore.

In Kuala Lumpur, Khong & Jaafar group of companies managing director Elvin Fernandez said the Singapore government was fine tuning the housing market.

“Malaysian developers who have projects there which have not yet been sold may feel the effect of this latest measure. Attempts to slow down the Singapore market in the past has seen the market rebounding soon after, which shows the inherent strength and attractiveness of the Singapore market,” he said.

The Malaysian market can hope to draw some of the investments into the areas like Iskandar Malaysia in Johor but this will require some similar degree of market transparency and efficiency as in Singapore.

The Monetary Authority of Singapore's (MAS) move to cool the property sector was part of the government's broader aim of “avoiding a price bubble and fostering longterm stability in the property market” as property prices continued to rise in second and third quarter, driven by low interest rates and rapid credit growth, despite the previous rounds of property measures, a press release said.

MAS also noted that over the last three years, the average tenure for new residential property loans has increased from 25 years to 29 years, with more than 45 per cent of new residential property loans granted by financial institutions having tenures exceeding 30 years.

 

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