New move to cool property market

The Monetary Authority of Singapore (MAS) introduced new measures to cool the property market yesterday.

Home buyers looking to secure loans of more than 30 years will now have to fork out 40 per cent of the purchase price as down payment.

Of that, 10 per cent must be in cash.

In its statement, MAS said: "Over the last three years, the average tenure for new residential property loans has increased from 25 to 29 years.

"More than 45 per cent of new residential property loans granted by financial institutions have tenures exceeding 30 years."

MAS said it has to act, with low interest rates globally and in Singapore likely to persist for some time.

The statement continued: "It will continue to spur demand in the residential property market, pushing up prices beyond sustainable levels. The eventual correction could be painful to borrowers and destabilise the economy."

Potential home buyers are now certain that they will stay away from loan tenures that are beyond 30 years.

Mr Chua Yew Seng, 23, a final-year student at the National University of Singapore, is thinking of applying for a flat at Sengkang or Buona Vista next month.

He set a budget of $500,000 for his home and said he would have to take a loan tenure of less than 30 years to finance his flat.

Mr Chua said: "If I have to fork out 40 per cent, it's definitely impossible."

Ms H.X. Kwan, 22, who is looking for a place with her boyfriend, also thinks that a longer loan is not ideal.

She said: "I won't want to be paying off a loan when I'm near retirement. At that stage, I should be saving up for my dependants."

MAS said long tenure loans pose risks to both lenders and borrowers.

Borrowers may over-estimate their ability to service the loans, and take a bigger loan than they can really afford.

Agreeing, property consultancy SLP International's research head Nicholas Mak said: "This measure is aimed at discouraging borderline investors from financially stretching themselves.

"It's about limiting available credit and curbing overbuying," he said.

If anything, this latest MAS measure is "more pre-emptive than cooling" as banks will be "flushed with liquidity" from quantitative easing, which will push property prices up because of demand", said Chesterton Suntec International's director of research and consultancy Colin Tan.

"This could push people into taking a longer-term loan to buy property," he said.

The people who would be most affected by this measure are those with outstanding property loans and thinking of buying another property, but these are "only a minority", Mr Tan said.

Financially strapped

The latest measure would impact all buyers whether it is an HDB flat to a $10million house "as long as they are financially strapped" said Mr Mak.

"Previously, a longer term might have enabled them to spread out their mortgage, but now two things come into play: the retirement age and the loan tenure."

"If you're 40 years old, you can't borrow up to 26years, it has to be 25 years. If not, you can only borrow up to 60 per cent of the purchase price," MrMak said.

The maximum tenure of all new residential property loans will be capped at 35 years.

In addition, loans exceeding 30 years tenure or where the loan term exceeds the age of the borrower beyond 65 yearswill face significantly tighter loan-to-value limits, Mr Tan said.

A spokesman for Mortgage Supermart Singapore said: "Mortgages on a short tenure like a five-to-10-year loan would typically mean that one-third of your monthly instalment would go to paying the interest while two-thirds of the payment would go to the principal.

"However, a longer tenure like a 35-to-40-year loan would skew the equation to about two-third interest and one-third principal."

A MAS spokesman said: "In reality, long tenure loans impose a larger debt repayment burden on borrowers as interest accumulates over a longer period. When interest rates eventually rise, borrowers who have overextended themselves will have difficulties repaying their loans."