Singapore Property Loans Ruling – Rushing For the Taper Deadline
A coordinated tightening of the noose around property prices. In Jan, all the LTVs and additional buyer’s stamp duties, in April, the rule on cheque collections and now,
First, we note the target is the Individual ie. This includes sole proprietorships and vehicles set up by an individual solely to purchase property.
Second, the rule is comprehensively extended to all types of property loans.
Third, its excludes the asset valuation bit because the LTV guidelines were revised in Jan this year.
Great news ! Singaporeans will be safe.
Bad news. MAS can only control the practice in Singapore ie. onshore.
So what are you waiting for ? Buy London today ! Borrow in the UK and US and Japan where these measures are not applicable. Foreigners, buy as you please but borrow at home and service loan in JPY ?
Just kidding. The above paragraph is said in jest and not to be taken as financial advice or even as a suggestion.
What this means, in my opinion, is that we are killing one segment of the market. My “buy and rent” uncles and aunties who usually use the rentals to offset the mortgage payments.
The all important outlook now, from my angle which is not that of a property investor.
1. Reits will gain in prominence because,
- The “buy and rent” investor segment will be investing in Reits instead but lose out big on potential capital gains.
- More Reits will be issued to takeover properties which means more rent control because they will monopolise the rental market.
2. Rentals will go up because breakeven rates are higher, more demand for rentals because people cannot afford to buy and because Reits will set the benchmark rentals which will be higher.
3. Barriers to entry for new property developers and tough times for the small guys (without mentioning names of grocery shops and jewellers who have frantically branched into real estate recently).
4. Offshore property investments will gain interest .. till MAS thinks of a way to regulate that but until then, we pass our problem to London and Iskandar (which has just announced the abolishment of the DIBS – Developer Interest Bearing Scheme).
5. Speculation will cool and slow down price gains along with new supply which benefits the established developers who have the holding power.
6. Mass market segments will be hit the hardest but the luxury market will be largely immune, for obvious reasons.
7. Bank margins will be higher but loan growth will slow, yet again, the retail loan segment has not been a driving force lately.
Kudos to MAS and their duty to the people. This is indeed a prudent measure to plug the leak and kill the “quick get rich” punters who have profited from the loopholes in the past. At the same time, it does not prevent anyone paying cash for an entire block of apartments if they like because Singapore is a safe haven and will have a population of 6.9 million in time.
Where are the punters going to go ? What will all the rich retirees invest in ? That is a story for another article.
Other Random Thoughts
This 3.5% for housing loans and 4.5% for non-residential property loans, referring to the specified medium-term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when calculating the TDSR, is rather interesting to an interest rate watcher like me.
Is it an interest rate guidance ? Can we assume 20 year interest rates is expected to be capped at 3.5% ? Just a wild thought and NOT TO BE TAKEN SERIOUSLY and I will not be liable to anyone who believes me.