Goh Eng Yeow asks if banks should tighten lending guidelines now.
IT MAKES sense to ask ourselves if the current terms extended by our banks for home loans are too generous.
If I recall correctly, these guidelines were relaxed, along with the scrapping of other anti-speculation measures like the capital gains tax on property sales profits, to fight the then scary free-fall in home prices after the bursting of the dotcom bubble bust in 2000.
But the loose monetary policy now practised by the US Federal Reserve to fight falling prices in the United States has the effect of depressing interest rates elsewhere in the world, where economic conditions are not similar to the US.
Given the risk of bursting a rather big bubble in our housing market, one has to ask if it is still sensible to stick to the same guidelines which were used to combat our own deflationary downward spiral in home prices. Will we be sowing our own seeds of destruction by doing so?
Banks will, of course, say that they have a sophisticated risk management system to screen borrowers to ensure that such a similar disaster like the US sub-prime crisis does not take place here.
Examples extended by bigger and more well-established global lenders offer no consolation. Continue reading
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