Tag Archives: Loan-to-value ratio

Loan rules aimed at those who over-stretch to invest

Citing the unsustainable low interest rate environment, National Development Minister Khaw Boon Wan yesterday singled out Singaporeans “who are stretching themselves buying second, third properties for investments” as a source of worry for the Government.

And it is this group that the Monetary Authority of Singapore’s new rules on housing loans announced last Friday are targeted at, he said.

The Total Debt Servicing Ratio framework — under which any property loan should not push a borrower’s total debt obligations to above 60 per cent of his or her gross monthly income — is a “structural” initiative and “quite permanent”, said Mr Khaw, reiterating that it was not a cooling measure.

Speaking on the sidelines of the launch of Sembawang Group Representation Constituency’s (GRC) Memory Project, Mr Khaw said the new rules ensure Singaporeans “do not get overleveraged”. “That’s why (the MAS) looked at total burden, so it’s not just buying property but buying a car for some families or even credit loans and expenditures,” he said.

The rules are “not an issue” for people buying properties for home ownership, he noted.

“But we do have buyers who are stretching themselves buying second, third properties for investments and those are the people we worry about because when interest rates go up, they find themselves not being able to afford the increased mortgage,” said Mr Khaw.

“They may be forced to liquidate and, who knows, if that time is combined with a bit of a glut in property market, they may suffer financially.”

On whether the market could expect more government intervention, Mr Khaw said “the measures will stabilise when the market stabilises”.

He added that property prices have been moderating. “At some stage, it will stabilise to what is the right level.”

He pointed out that so far, property measures have been announced “incrementally” for the “general good of buyers and sellers”. Rolling out all the initiatives in a big-bang approach might crash the market, he said.

With the Government ramping up the supply of flats, Mr Khaw noted the “social objective” of building enough flats such that families can live “close together”.

Adding that more flats are being built in the north, Mr Khaw said it was also with this objective in mind that expansion plans for Tampines North are in the works.

“Tampines is already a very mature town with a big population. As the children grow up, get married, we can enable them to buy properties near old Tampines in the form of Tampines North,” he said.

In Sembawang GRC, its Memory Project — part of an islandwide movement to preserve the country’s history and heritage — would also serve to strengthen the bonds between the young and old.

About 80 polytechnic students and 40 youth volunteers from the constituency’s youth executive committee will source and collate memorable stories of kampung life from about 100 residents. The residents will share stories, pictures and artefacts, which will be collated in a book, Chronicles of Remembrance, which is expected to be released in May next year.

“Our kampung, our lives … all those should be captured,” said Mr Khaw. “Through a younger way of looking at things — interviewing, capturing, extracting the essence, getting the right visuals and then presenting it in various new media — we will achieve this in a much better way.”

Source – Today – 3 Jul 2013


MAS ruling spooks some overseas investors

Last Friday’s announcement by the Monetary Authority of Singapore (MAS) to cap the amount of income that Singaporeans can use to finance a property purchase is already having an impact in property markets far beyond the shores of the city-state.

Marc von Grundherr, Director of the London-based Benham & Reeves residential lettings agency, told PropertyGuru he was already getting calls from worried Singaporeans who have invested in U.K. property.

He said: “The MAS initiative came as a shock, and I’ve had a string of calls about it. Some clients were concerned about properties which will be completing during the next 12-24 months, and some were even contemplating dropping their deposits – which is obviously a drastic measure.”

Von Grundherr predicted that there may be as much as a 40 percent drop in Singaporeans buying in the UK over the short term.

“The only saving grace is that MAS did not look at existing loans as this would have been catastrophic with Singaporeans having to sell. I am sure things will settle down but there will be a lot of worried people right now,” he added.

Others in the industry were more optimistic and less worried about the impact of the latest attempts to cool Singapore’s property market.

Julian Sedgwick, Director – Head of Business Development for International Residential Sales Asia Pacific at Savills, said: “I think this measure may slow down the number of local financing deals offered to clients as they now have to produce a lot more documentation and declare credit cards, etc.”

But Sedgwick does not believe there will be a drastic drop in demand for overseas property from Singaporean buyers and investors.

He said: “I don’t think it will affect the number of units sold or slow the market; it is just going to be a tighter and longer process to get financing. Some clients may just have to pay slightly higher interest rates compared to what they are used too.”

Doris Tan, Head of International Residential Sales for Jones Lang LaSalle was also more circumspect about the possible impact of overseas property sales to Singaporeans.

She said: “The impact will be greater for local property as there is a larger number of people who want to be owners of private residential property rather than owners of overseas property. However, with the introduction of a lower overall quantum and more difficulty to qualify for a loan, it will definitely affect sales of both local and overseas properties.”

Sarah Nicholson, Associate Director for International Project Marketing at CBRE was also less worried about the impact of the new MAS ruling.

She said: “Singaporean buyers looking to invest in international property are well educated and informed, and it is likely that they already carry out a self-assessment of their own liabilities before proceeding with any purchase.”

“These measures will reduce the chances of purchasers over-stretching themselves and thus prevent the boom and bust cycle which Dubai experienced in 2008 as a result of the abundance of overleveraging, as well as the amount of cheap loans which eventually dried up as the global financial crisis deepened.”

“It may also lead to some previous purchasers, who are yet to get their financing in place, choosing to assign their contracts before completion. We would urge anyone in this position not to panic and to get in touch with their agent to consider the best way forward.”

One possibly unintended consequence of these latest measures could see Singaporeans who are intent on getting financing for their overseas property purchase, and not meeting the MAS requirement, being drawn to overseas banks – and even taking advantage of developer financing opportunities.

Jimmy Ng, Key Executive Officer of Premiere Realty, said: “We do expect more overseas developers to start offering financing plans directly to customers, and we are already in discussion with an overseas developer to launch a project that offers zero interest monthly payments.

“We foresee more Singaporeans will buy overseas properties, as the cost of owning an additional investment property in Singapore will be tough with all the government cooling measures.”

Mohamed Ismail, CEO of PropNex Realty also highlighted the overseas financing opportunities.

He said: “If I am looking at an overseas property now, I would rather apply for overseas bank for my overseas purchase.”

He added that he felt it is not likely that developers will offer financing on a large scale, and if they were to do so MAS will definitely look to regulate.

Source – PropertyGuru – 3 Jul 2013