MAS Restricts Loan Tenure for Residential Properties – What Does the Future Hold?

After several rounds of cooling measures, Singapore’s residential market has continued to climb in Q2 and Q3 of 2012. Thus MAS has stepped in once again, and as of today, borrowers will no longer be able to take loans of longer than 35 years. Given that the average tenure of residential property loans in Singapore is well below 35 years (29 years, according to MAS’ official press release yesterday), and bearing in mind that this average does not take into account the percentage of homes in Singapore that are fully paid-up, I don’t foresee this measure having a huge impact on the market.

In addition, MAS has also tightened the loan-to-value ratios granted to borrowers falling under any of the following categories: –

loan tenure exceeds 30 years; OR

loan period extends beyond the borrower’s 65th birthday.

For affected borrowers, the maximum loan-to-value ratio allowed will be:-

60% for those with no outstanding mortgages; and

40% for those with existing mortgages.

Again, not of huge significance to the general residential property market, but I would say a welcome measure to protect the less-savvy, ill-advised buyers who may not realise today’s interest rates are not the norm in the long-run and over-estimate their ability to support a mortgage.

When assessing the potential impact of the latest measures, one should bear in mind that we are still a far cry from 1996, when the government came down hard on the market, banning all foreigners from taking SGD loans to finance residential property purchases in the country. One should also remember the rationale for the cooling measures – it’s to prevent a property bubble, not cause a crash!

I personally feel that the government’s latest measures serve more as a clear indication that they are bracing themselves for the effects of QE3 to hit our shores, and am still of the view that the market will continue to inch upwards in a controlled manner over the next year or so.

My main concern would be that perhaps this measure would have the undesired effect of further widening the income gap between those who have the ability to invest in property, and those who are struggling.  Think about it – with the current measures, those past 35 years of age will either have to take a loan tenure shorter than 30 years, or alternatively,  have to cough up an extra 20% in cash. For those who are struggling to save up enough to even pay 20% of the purchase price, this presents a critical deadline – you either need to have enough to pay for 20% of your home purchase before you hit 35 years of age, or have to save double that amount once you pass that life-changing birthday!

For MAS’ official press release, refer to: http://www.mas.gov.sg/News-and-Publications/Press-Releases/2012/MAS-Restricts-Loan-Tenure-for-Residential-Properties.aspx

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