THE measures taken by the Government to cool the residential real estate market are laudable. It is hoped that cool and level heads will prevail.
However, the interest absorption scheme (IAS) and interest-only loans are arguably offshoots of the disallowed deferred payment scheme (DPS). Buoyant trading and investment in property are also due to the current low interest rate environment, coupled with a dearth of attractive investment avenues over which we have little control.
Given the creativity and astuteness of property developers in Singapore (substituting IAS for DPS is a case in point), measures should also be adopted on a pre-emptive basis.
– Increase down payment ratio to 10 per cent
To nip the problem in the bud, there is one measure that is truly intuitive, and wholly within the Government’s control, which is to increase the cash down payment ratio to 10 per cent from the current 5 per cent of purchase price.
An increase in down payment ratio makes sense and is prudent. If a buyer wants to buy a property for $1 million but is unable to fork out $100,000 (or rather an incremental $50,000) in cash, he is not in a position to take on a leverage of $800,000. Continue reading
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