A new round of government measures to cool the property market was announced on Friday:
1) With effect from 6 October 2012, mortgage tenures of HDB flats and private properties are capped at 35 years.
2) Loans longer than 30 years have a borrowing limit of 60 percent of the property price.
3) If the >30-year-loan goes beyond the borrower’s retirement age of 65, and the borrower has another outstanding residential property loan, the limit will be further lowered to 40 percent.
4) For non-individual borrowers, the loan-to-value is restricted to 40 percent.
These rules shouldn’t come as a surprise to anyone in the industry.
They all see that the cooling measures follow the same pattern each time, with almost no exception:
Step 1: Noises of Singaporeans complaining about property prices going up too rapidly, or a report on ‘creative solutions’ introduced by developers or banks, e.g., shoebox units, 50-year loan, etc.
Step 2: Negative comments by the National Development Minister on these solutions or on the overheat market.
Step 3: Government announce cooling measures in a month or two.
So, buyers who just bought their properties at showflats over the previous weekend, please stop complaining about the new cooling measures. You’ve been warned well in advance, haven’t you?
But this time, it’s obvious that the government is targeting United Overseas Bank’s recent promotion of 50-year housing loans.
In fact, UOB is often the one that comes up with very ‘creative’ gimmicks to stimulate market demand. In the mid-2000s, it’s the first bank that introduced paying nothing during the 1st year of the mortgage.
Anyway, to improve the cashflow and net return of a property investment, there are three things that the banks can play with:
1) the interest rate;
2) the tenure; or
3) zero payment for the first few years.
To tackle the problem of higher initial cash outlay, buyers can always apply for a second loan from other sources, while paying low or no interest for their first mortgage in the initial years.
Thus, I don’t think the new round of measures are effective in cooling the market, just like any previous rounds of government interventions. The market may be quiet for a few weeks, but the steam will be back in no time.
Here are the main reasons:
1) According to the ‘Property Investor Profile Survey’ conducted by Ascendant Assets, the average age of a typical Singapore property investor is 46. Even before the new measures kick in, the buyer already knows that most banks will offer him a maximum loan tenure of around 19 years based on his retirement age.
2) Many Singaporeans are cash-rich. They are still buying properties despite the sky high prices, because they tend to believe that:
– Property prices will still be on its way up;
– They have no better alternative to put their money in; or
– They need a place to stay and they can’t wait any longer.
3) The developers have leftover units to push and new projects to sell. The mortgage relationship managers have quota to meet. When one’s livelihood is concerned, one can always find a way out.
Afterall, this is all mental game. As soon as there’s no fear in the street, the bubble will still be on its way up!
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