Lush Dream Home

EVERY few months, property industry players renew their call for cooling measures to be lifted, pointing to the sluggish property market.

The most recent suggestion came, albeit indirectly, from the Real Estate Developers’ Association of Singapore.

In September, it warned that if cooling measures cause consumer sentiment to decline too much, “there could be a broader impact on the economy”.

But it stopped short of calling for specific changes – unlike property developers in August, who did not hold back.

Each time the topic is broached, however, the Government reiterates its stance that it is still too early to do so.

Of course, the cooling measures will be relooked “sooner or later”, as National Development Minister Khaw Boon Wan put it during a Chinese news programme last week. There has been much speculation about when this might happen.

But apart from timing, there is another question about this eventual relaxation: Exactly which measures will or should be lifted?

A whole range of policies are referred to as “cooling measures”, but some are arguably important not just as short-term moves to bring a soaring property market down, but as basic safeguards.

Even if prices cool as planned, some measures may be worth keeping.

One is the 35-year cap on the tenure of home loans. At its introduction in October 2012, the Monetary Authority of Singapore (MAS) said it was part of the “broader aim of avoiding a price bubble and fostering long-term stability in the property market”.

In other words, it was important not just as an immediate cooling measure, but also as part of a more stable property market.

The cap was also meant to protect both borrowers and lenders.

The MAS noted then that low initial monthly repayments, made possible by long tenures and low interest rates, might lead borrowers to take a larger loan than they can truly afford, and to have the repayments stretch over a longer period.The number of residents aged 65 and over with outstanding private mortgages has almost tripled since 2008, reaching 15,506 this July.

While some may be financing investment homes and are not in financial difficulties, others may be in danger of being saddled with a loan they cannot afford to keep servicing. The 35-year loan tenure cap for private property should help avoid that situation.

R’ST Research director Ong Kah Seng considers the cap “a good measure to keep, irrespective of market conditions”.

Similarly, other cooling measures that keep homeowners from overstretching themselves should be retained for that purpose.

“Loan-related measures should be removed last, as these measures encourage financial prudence,” says OrangeTee managing director Steven Tan.

Take the Total Debt Servicing Ratio (TDSR) of 60 per cent, introduced last June. This means financial institutions cannot extend a home loan if prospective borrowers’ monthly repayments – for all their loans – exceed 60 per cent of their gross monthly income.

This protects borrowers from over-extending. It also reduces the risk of bank overexposure to bad loans by filtering out borrowers more likely to default, notes PropNex Realty chief executive office Mohamed Ismail Gafoor, who also thinks it should remain.

Playing a similar role to the TDSR is the Mortgage Servicing Ratio limit of 30 per cent. This is the proportion of gross income that can be used to service a loan for a Housing Board flat.

As it promotes financial prudence, it would make sense to retain this- at least in part – to ensure that buyers do not overstretch themselves.

In contrast to these cooling measures are those which seem to aim simply at reducing demand. These include the Additional Buyer’s Stamp Duty (ABSD), introduced in 2011 and increased last year.

Singaporean property owners must pay 7 per cent on their second property, and 10 per cent on subsequent ones. The duty is higher for permanent residents and foreigners, with the latter paying 15 per cent on any property bought.

Experts point to this as the first of the cooling measures that should be tweaked or removed.

As a tax on property purchases, it merely discourages buyers.

Administratively, removing ABSD is also the easiest move if the Government wants to adjust any cooling measures, notes SLP International Property Consultants head of research Nicholas Mak. It will not affect existing properties, unlike loan curb changes which have implications for refinancing, for instance.

After ABSD, the next cooling measure which could be relooked is Seller Stamp Duty, say experts.

Payable on properties sold within four years of their purchase, it aims to discourage speculation and “flipping” of properties. “In times of a downturn, the SSD can prove to be a double-edged sword, amplifying losses for investors who need to liquidate their property investments,” says Mr Tan.