Almost ten months after the fifth round of measures were announced, the sixth round of new restrictions was introduced by the Monetary Authority of Singapore (MAS) on 5 October 2012. While previous rounds of measures by the Singapore Government have had a moderating effect on property prices back then, it seemed, however, that prices in both the HDB resale market and private residential property have continued to rise in 2012. This round of measures was largely due to a few factors. Driven by low interest rates and rapid credit growth, MAS believed that rising property prices would continue for a while, spurring increasing demands in the residential property market and causing a property bubble.
Besides putting a stop to rising property prices, MAS also sought to encourage prudent lending with the new restrictions imposed. With a perceived rising property market and with financial institutions lengthening the tenures of residential property loans, it gave borrowers and lenders alike a false confidence – over-estimation of their abilities to service the loans for borrowers, and for the lenders, that the borrowers will be able to sell their property at a higher price should they face any difficulty making repayments. However, the reality was that loans with a longer tenure subjects the borrower to a larger debt with more interest accumulated over a longer period of time. Eventually, if interest rates were to rise and property prices fall, borrowers would have over-stretched themselves and be riddled with debt. Financial institutions will then be overwhelmed with bad debts as well.
With that, the following is the sixth round of property cooling measures announced on 5 October 2012.
- All new residential property loans are capped at a maximum tenure of 35 years.
- Additionally, loans exceeding a 30-year tenure or extending beyond 65 years of the borrower’s age are subjected to tighter Loan-to-Value limits, which are as follow:
- 40% – borrowers with one or more existing mortgages
- 60% – borrowers with no existing mortgages
- 40% – non-individual borrowers