Singapore acts to prevent housing market bubble

SINGAPORE introduced yesterday measures to prevent a bubble in its housing market and ensure more prudent lending by banks after property prices rose at a faster pace in the third quarter.

Beginning today, the maximum tenure of all new residential property loans will be capped at 35 years, with loans exceeding 30 years facing significantly tighter loan-to-value limits, the Monetary Authority of Singapore (MAS) said in a statement.

Other measures introduced by the authority, the country's central bank, included a lower loan-to-value ratio for residential property loans taken up by companies and other non-individual borrowers.

"We are taking this step now to require more prudent lending, and will continue to watch the property market carefully," MAS chairman Tharman Shanmugaratnam said in the statement.

"We will do what it takes to cool the market, and avoid a bubble that will eventually hurt borrowers and destabilise our financial system."

Tharman, who is also deputy prime minister and finance minister, said quantitative easing by central banks and low interest rates had resulted in easy credit but the situation would eventually change.

Singapore interest rates are near record lows and home buyers can pay as little as one per cent per annum on their mortgages.

"Over the last three years, the average tenure for new residential property loans has increased from 25 to 29 years.

More than 45 per cent of new residential property loans granted by financial institutions have tenures exceeding 30 years," the central bank added.

Singapore did not previously set a maximum duration for property loans and the longest maturity currently available for homes in the city-state is a 50-year loan offered by United Overseas Bank.

Singapore private home prices rose 0.5 per cent in the third quarter from the April-June quarter when prices increased by 0.4 per cent, while resale prices of government-built Housing and Development Board (HDB) apartments leapt 2.0 per cent quarter-on-quarter following a gain of 1.3 per cent in April-June.

Private residential prices have risen 55 per cent since hitting a trough in the second quarter of 2009 in the aftermath of the global financial crisis. HDB apartment resale prices have jumped 43 per cent after a relatively mild correction in the first quarter of 2009. Reuters

The last comprehensive set of real estate cooling measures were introduced in December last year when the government imposed an additional 10 per cent stamp duty on the property value that buyers who were not Singapore citizens or permanent residents had to pay.

By Reuters