Singapore Tightens Loan Limits to Cool Housing Market
Singapore increased down payments for second mortgages and imposed a stamp duty on property held for less than three years to curb speculation after home prices surged 38 percent in the second quarter.
Buyers who hold more than one mortgage can only borrow up to 70 percent of a property’s value, versus 80 percent previously, and must pay 10 percent in cash, up from 5 percent, the government said in a statement today. A seller’s stamp duty will apply to all residential units and land sold within three years of purchase, from one year. The changes take effect today.
Singapore joins Hong Kong and China in introducing measures this year to cool their property markets amid concerns that asset bubbles are forming as home prices surge. Hong Kong said this month it will tighten mortgage lending rules and increase the supply of land, while China’s restrictions include higher down payments and mortgage rates for multiple-home buyers.
“The government is taking a preemptive approach to make sure prices don’t get out of hand,” said Donald Han, a Singapore-based managing director at real estate adviser Cushman & Wakefield Inc. “Most of the measures are really targeting repeat buyers and speculators who buy and sell over the short term, which is now defined as within three years.”
Stocks, Bonds
CapitaLand Ltd., Southeast Asia’s biggest developer, dropped 1 percent to S$3.96 as of 1:15 p.m. in Singapore trading, while the benchmark Straits Times Index rose 0.6 percent. City Developments Ltd., the island’s second-largest developer by market value, fell 3.2 percent to S$11.58, headed for its biggest decline since February.
CapitaLand’s S$250 million ($185 million) in 4.35 percent notes due 2019 fell to 101.88 cents on the dollar from 102.48 cents on Aug. 27, the lowest in about two weeks, according to Standard Chartered Plc prices. City Developments’ S$90 million in 2.92 percent notes due 2014 fell to 101.68 cents, the lowest since Aug. 10, according to DBS Group Holdings Ltd.
Property prices have surged as Singapore’s $182 billion economy rebounded from last year’s global slump to expand at a record 17.9 percent pace in the six months through June.
The city-state has been attempting to rein in home prices since last year when the government barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments still being built.
Previous Measures
The government in February said it will levy a seller’s stamp duty on all residential properties and land that are sold within one year from the date of purchase. The city-state then also lowered the loan-to-value limit to 80 percent from 90 percent for all housing loans provided by financial institutions regulated by the Monetary Authority of Singapore.
The island nation’s Prime Minister Lee Hsien Loong yesterday said previous measures failed to keep prices in check.
“We twice attempted to cool the property market, once last year and once in February this year, but the prices are still rising,” Lee said in a televised speech. “Our purpose is to make sure in the long term, Singaporeans can own their homes and afford it and it will be a gradually appreciating asset which will grow as Singapore grows.”
Singapore’s property market would form a bubble if the current momentum continued, Mah Bow Tan, Minister of National Development, said today after the measures.
Prices Surge
“The property market is currently very buoyant,” the government said in the latest statement. “The government’s objective is to ensure a stable and sustainable property market where prices move in line with economic fundamentals.”
Singapore private residential prices rose 38 percent in the second quarter from a year earlier, according to the Urban Redevelopment Authority.
The island led 36 markets around the world in property- value changes last quarter, gaining 34 percent from a year earlier, according to the Global Property Guide in its survey of house prices.
Price levels have exceeded the historical peak in the second quarter of 1996, the government said today.
The government expects gross domestic product to grow 13 percent to 15 percent this year after the nation in 2009 exited its worst recession since independence 45 years ago.
‘Severe Implications’
“Should economic growth falter and the market corrects, property buyers could face capital losses, with implications on their own finances and the economy as a whole,” the government said. “Moreover, the current low global interest rate environment will not continue indefinitely, and higher interest rates could have severe implications for buyers who have overextended themselves.”
Malaysia’s central bank has written to financial institutions to get their feedback on the possibility of capping the loan-to-value ratio for mortgages at 80 percent, the Edge weekly reported Aug. 28, citing unidentified people familiar with the matter.
