Singapore Tightens Housing Loan Limits as Rates Rise

BY Realty+

Singapore has unveiled a package of measures for the property market, including tightening lending limits for housing loans in response to a rise in interest rates, as well as new steps to moderate demand.

The move would ensure ‘prudent borrowing’ and ‘avoid future difficulties’ in servicing home loans, said Singapore's Central Bank, the Ministry of National Development, and the Housing & Development Board in a joint statement. The measures - including lowering the number of government loans available to buy public housing by 5 percentage points came into effect.

The interest rate floor used in bank loan calculations has also been raised, reducing the amount of lending a person can obtain in relation to their income level when buying from either the public or private property market. OCBC economist Selena Ling said the steps should ‘dampen any exuberance and slow the pace of price appreciation.

The measures would have less impact on foreign investors as they are more attuned to the global interest rate situation or less dependent on loans, Ling said. The new measures are mainly targeted at the overheated resale public housing market, said Christine Sun, Senior Vice President of Research & Analytics at OrangeTee & Tie.

Analysts expect the measures to slow property price growth in the fourth quarter. Reportedly record numbers of Singapore public housing apartments were sold at over S$ one mn ($697,739). The government implemented a broad package of cooling measures last December, but there was still a "clear upward momentum" in public housing prices which increased by more than 5% from then to the end of the second quarter this year, the authorities said.

Meanwhile, private home prices also rose 3.5% in the second quarter, five times the 0.7% increase in the previous quarter. The higher prices of apartments in Singapore, where real estate is viewed as a safe-harbor investment, have been exacerbated by COVID-19-related construction delays creating a shortage of new units. Authorities said that interest rates had risen significantly and are likely to go up further.

"We urge households to exercise prudence before taking up any new loans, and be sure of their debt-servicing ability before making long-term financial commitments." Share prices of major developers in Singapore like City Developments, GuocoLand and Frasers Property, fell more than 1.5% following the new measures, compared with a 0.4% drop in the broader market.

Many central banks across the world have increased interest rates to fight inflation. In Singapore, bank mortgage interest rates are determined by commercial banks. Three local banks have in recent weeks temporarily removed fixed-rate home loans. Singapore's monthly inflation rate has remained elevated in recent months, and economists widely expect the central bank to tighten policy at its scheduled review next month.

Tags : Singapore property market interest rates Central Bank Ministry of National Development Housing & Development Board Christine Sun Senior Vice President Research & Analytics OrangeTee & Tie