New measures expected to slow down home loans

Published January 14, 2011

The Business Times
By Siow Li Sen

They will eliminate speculators, rein in prices, say bankers

Bankers are bracing for a slowdown in home loans as buyers take stock of the government’s latest property measures to dent the buoyant market.

The latest restrictions, the third in 12 months, are considered fairly drastic as they call for cash of as much as 50 per cent to buy a property in some cases. They could eliminate a lot of potential buyers.

In addition to increasing the holding period to four years from three for seller’s stamp duty, the lower loan-to-value (LTV) for property purchasers who are not individuals is now 50 per cent.

That means a buyer will have to fork out $500,000 in cash for a $1 million home. And for individuals with one or more outstanding housing loans, the LTV limit on home loans will be lowered from 70 per cent to 60 per cent.

The latest measures will weed out speculative activities and further deter potential investors because of the higher cash outlay and a higher breakeven price to be achieved with a significant increase in stamp duty when the property is sold within four years, said a UOB spokeswoman.

Lui Su Kian, DBS senior vice-president and head of deposits and secured lending, said the bank has always encouraged home buyers to be prudent as a home loan is a long-term commitment.

‘These new measures are likely to affect investors who would have to commit higher cash amounts for their down payments,’ said Ms Lui.

As it is nearing the Chinese New Year, generally a quiet period for the market, it will take some time to ascertain the impact of the new measures, she added.

‘The new property measures will have an impact on new housing loan applications, as we expect potential homebuyers to be more cautious and will take their time to review their options,’ said Phang Lah Hwa, OCBC Bank’s head of consumer secured lending.

Housing loans have been the biggest driver of bank loan growth, though there are signs of slowing growth. In November 2010, the latest data available, housing loans rose 1.7 per cent over the month – and 22.1 per cent over the year – to $110.9 billion at end-November. The annual pace of growth has been slowing since August, when it reached 23.4 per cent.

The 50 per cent LTV will hit a lot of mini-developers, sometimes comprising small groups of friends or relatives who join hands to buy a few, typically older properties, do them up and sell for a quick profit.

‘I know of friends who banded together to buy two old properties. One of them is a contractor so he did them up cheaply, and they’ve sold them and they’ve made half a million,’ said one banker.

Bankers expect the latest measures to rein in property prices, unlike those announced last year, which had little impact.

Vibha Coburn, Citibank Singapore business director, secured finance solutions, said a stable property market is good for the economy and Singaporeans.

‘These new measures will help to reduce speculation in the market and owner-occupiers will continue to have opportunities to get their dream homes.’

Dennis Khoo, Standard Chartered Bank Singapore head of consumer banking, said the new measures will curb speculation and create greater home ownership opportunities. ‘We’d like to reinforce that, the majority of the mortgage customers are homeowners. In this regard, while we will continue to monitor customer sentiments closely, we feel that the new measures will have minimum adverse impact on the bank.’

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