Government caps tenure of residential loans at 35 years

[Musicwhiz]

News fresh from the oven! Not really a property curb in the strict sense, but it's more of targetting the borrowers and how much they can borrow. Now maximum is 35 years and not some ridiculous tenure like 50 years!

The Straits Times
www.straitstimes.com
Published on Oct 05, 2012
Government caps tenure of residential loans at 35 years

By Daryl Chin

IN a bold move to avoid a property bubble, the Government has capped all new loans for residential properties at 35 years, starting tomorrow.

In a statement released on Friday, the Monetary Authority of Singapore also said loans exceeding 30 years will face a tighter loan-to-value limits.

Homeowners can only borrow 40 per cent of the property's valuation should they have an outstanding mortgage, and 60 per cent if they do not.

This rule also applies to those whose loan period extends beyond the retirement age of 65.

Explaining the move, MAS said this was part of the Government's broader aim of avoiding a price bubble and fostering long term stability in the property market.

"The new rules aim to curb continued upward pressure on residential property prices, driven by low interest rates and rapid credit growth. Previous rounds of Government measures have had a moderating effect on residential property prices," it said.

Flash estimates in both the private and public resale market have reached record highs.

Property demand is likely to continue given low interest rates, which will spur prices beyond "sustainable levels".

"The eventual correction could be painful to borrowers and destabilise the economy," it said.

Meanwhile, the agency has also sat up and taken note of some worrying trends. Financial institutions like banks have been lengthening their tenures -some as long as 50 years - for residential properties.

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 exceed 30 years.

"Long tenure loans pose risks to both lenders and borrowers. The lower initial monthly repayments, made possible by long loan tenures and the current low interest rates, may lead borrowers to over-estimate their ability to service the loans, and take a bigger loan than they can really afford."

[WolfT]

They should capped max at 30 yrs. Period!

[mysterion]

It's more of a positive for the average person on the street, and not for an investor.

An investor would surely welcome greater fluctuations in property prices since there would be a lot more attractive investment opportunities during the burst of a property bubble. The greater the difference between extreme pessimism and extreme optimism, the greater the potential returns for the value investor.

[LionFlyer]

It's more like a signal to the lenders and property developers rather than to the borrowers.

[dydx]

The bankers are nuts to make loans that last over 30 years!, and the banks they work for are fanning the residential property market and prices! So are the more than 45% of those buyers of new residential property who need a loan, just because the banks are willing and interest rates are low.

I much prefer just having a housing loan for 60% of the purchase price and a 15-year tenor, and try to pay it off within 10 years!

[koh_52]

New rule likely to affect the mass market ppty market.

Well with QE3 where you think the money will flow to??

Stock, Gold or Property?

[brattzz]

QE3 hot money?

My guess in sg is,
1) Industrial Properties
2) Gold
3) Stock Market


now if MAS will do the same to purchase of cars too!!
limit car loans to 3.5yrs only!!! not 10 yrs!!

[corydorus]

Car is luxury item. Price higher the better if they have the term correct.

[Musicwhiz]

Singapore population in 2011 - 5.18m
Singapore population in 2012 - 5.31m
Growth of 130kk......how many new homes are needed to house them? 25,000? 30,000?

If growth rates of population is 2.5% a year(with a population of 5.31m that meant extra 100kk people each year) then the supply of homes gonna have to increase by 2.5% on average......

as long as the population continues to grow at this rate and if supply could not meet up the demand then price of homes will continue to go up no matter if there is QE3 or not.......

I guess your argument here presumes that the Govt will continue to import more and more people, and our CEO Lee (oops, I mean PM) did mention that Singapore can comfortably accommodate 6 million people. So that's another 690,000 additional people from the current 5.31m.

If we look at the bumper supply of housing which will come in 2014-2015, it's still questionable whether it can house ALL these people.

Data taken from this website (http://www.singaporepropertycycle.com.sg...2013-2014/) shows that:-

In 2013, there will be addition of about 41,000 homes, 2014 45,000 homes and 2015 46,000 homes; for a total of 132,000 homes. 9M 2012 has already passed with a target of 30,000 homes, so let's assume 1/4 of that for 4Q 2012 which is 7,500 homes. So total added together is about 140,000 homes.

Let's assume the average household size is 3-4 people, let's take 3.5 people (families with one-two kids). This means that for 690,000 people to come in, we need about 197,000 homes. There is thus still a shortage.

So barring unforseen circumstances, property prices should at least remain stable because of incoming supply.

Risks would be severe economic problems in the world derailing the influx, more draconian property measures by the Govt, or a significant ramp up in supply.

Note: I do not know the date of the article I posted, neither can I verify the autheticity of the numbers. This is just a simple projection I am doing.

[brattzz]

what MAS is doing now is quite clear, to prevent too big a bubble to form.
limit the "not so rich" from tabbing too much into the property sector.

means downward performance for economy might be happening soon...