HOME buyers are being advised to pause a moment before leaping into the purchase of that dream apartment.
The Monetary Authority of Singapore (MAS) yesterday cited two scenarios in which the resurgent private property sector may not stay quite so rosy.
The central bank also flagged possible fresh measures to cool the sector, on top of last week’s government announcement that plenty of mass market condominium sites will be released next year.
The first scenario MAS outlined is that if economic growth proves to be weaker than expected, property buyers – including speculators – could suffer losses as the market corrects and home prices fall.
Second, even if the economic recovery stays on course, property buyers could suffer a hit of a different kind in the longer term, the central bank warned.
In a rebounding economy, it is more likely that interest rates – now at rock bottom levels – will eventually rise, and this will drive up monthly instalments on home loans that are not fixed.
This could have severe implications for buyers who have over-extended themselves with big home loans, believing interest rates will always stay low.
The MAS issued the words of caution in its annual Financial Stability Review released yesterday, even as it acknowledged a strong rebound of the economy.
It said households here have weathered the crisis relatively well, owing to their sound money management. Banks are not weighed down by risky loans.
However, MAS said that with the market expecting interest rates to stay low for some time, more buyers, including speculators, may be drawn to the market, driving up demand and prices.
Given the risks, MAS said prices and sales needed to be monitored closely.
It outlined earlier government market cooling steps, adding: ‘The nature and timing of further measures, if deemed necessary, would have to be balanced against the still-uncertain path of economic recovery.’
According to Urban Redevelopment Authority data, private home prices surged 15.8 per cent in the third quarter – the sharpest quarterly rise in 28 years.
Volume has been strong with 12,969 homes sold in the first nine months of the year. Experts expect full-year sales to exceed the 2007 new home sales record of 14,811 units.
The MAS warning comes as a growing number of Asian nations, such as Hong Kong and South Korea, step up efforts to rein in property buying, for fear of a home prices bubble.
In September, Singapore, for its part, announced a slew of measures to cool the market, including the withdrawal of the interest absorption scheme that allowed home buyers to defer payments.
Details of mass market land sites to be offered to developers in the first half of next year were unveiled last week.
These steps have had some effect already – with the number of home sales falling in the last two months. A key indicator of speculative activity, sub-sales – when uncompleted homes are bought and resold before being built – are also down.
MAS pointed to encouraging signs on banks’ property exposure. More than 70 per cent of housing loans are for owner-occupied residential properties, which suggests a lower risk profile, it said.
One trend MAS noted: the share of total loans where the value of the outstanding loan is above 80 per cent of the property’s value has surged from 8 per cent last December to 17 per cent in September this year. However, dreaded negative equity, where a home loan exceeds the value of the home, remains very low at less than 3 per cent of loans.
In any case, banks’ checks include the person’s debt-servicing ability. Said Standard Chartered Singapore’s general manager for retail banking products, Mr Dennis Khoo: ‘You should not have more than $1 for every $2 that you earn going into overall debt servicing.’
Source : Straits Times – 10 Nov 2009
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