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,
MAS Introduces Debt Servicing Framework for Property Loans.
We are heading into AUSTERITY ! ompah China Style and doing away with the QE print press.
Plugging the leak to open a sinkhole ?
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.
I think the 3.5% and 4.5% rates are obviously going to be adjusted over time, probably with a spread over the equivalent interbank interest rates swaps or US rates. Have they “christened ” these two rates yet? If not, they should since they are clearly here to stay.
I don’t know how these rules will be imposed on those individuals who have set up shell companies to hold their numerous properties across this country. Any idea?
Yah – this is clearly a rush to the tapering deadline. Is this a precedent for other Asian central banks?
On an individual basis, I do not think this will have any big impact on property buyers.
1) Most banks would not lend money if your debt servicing ratio exceeds 40-50% range. Banks get worried too if you have more than 1 property. I reckon the measures is to prevent reckless expansion of balance sheet by banks.
2) The previous tightening measures has reduced many people’s ability to borrow to the hilt.
3) I think hit will be on folks that has used their children’s or parent’s name to purchase another property. Now these people need to bring the property onto their ownership, or get the “owners” to service the loan. Both would be restricted by the income-age weighted rules.
a) It will hurt because they need to pay estate duties to transfer ownership.
b) They can’t sell because of the tax rules if you sell within 5 years.
c) Owning more than 1 property means your LTV ratio would need to be 60% or less.
d) Refinancing would hurt due to higher interest rates.
However, I think these guys will muddle through. They are probably cash rich enough to pay up on any of the options listed above.
4) I doubt people will set up shell companies to own properties. The tax regime for companies I think are not exactly favorable. Loan rates are probably higher as well.
Well, many of these people probably own 1 or more cars. Easiest way to reduce your debt servicing ration? Sell your car.
Singaporeans would rather sell their cars than to sell the property. Especially when the new rules make it hard to own a second property.
One thing for sure rich would continue to get richer and banks tend to gain most. Folks cannot refinance now, so they would have to pay higher rates when the term of their loans end. Suddenly, the floating rates doesn’t look that appealing anymore.
Rich get richer is not a bad thing ?
Rather than all become poor ? Just kidding.
Wealth rebalancing is tricky thing but the fengshui masters say the new Bukit Brown freeway may just do that.
Meanwhile, in other parts of the world….
The Middle-Class Revolution : WSJ
How many apartment cooling measures have the singapore government implemented? I think it is only a matter of time before real estate market reverse.