Monday, October 8, 2012

Here's why new property measures are not punitive

It's preventive instead given that average loan tenure remains at a relatively acceptable 29 years, says OCBC.

The MAS announced last Friday that that it would limit all residential loan tenures to 35 years effective 6th Oct 2012. This would apply to both individual and non-individual borrowers, as well as refinancing loans. For loans exceeding 30 years and those extending beyond the retirement age of 65 years, the loan to valuation (LTV) ratio is
lowered to 40% from 60% for those with one or more outstanding residential loans, and 60% from 80% for those with none.

The LTV ratio for non-individual borrowers is also lowered to 40% from 50%.

MAS indicates that it is taking this step because long tenure loans “may lead borrowers to over-estimate their ability to service the loans, and take a bigger loan than they can really afford.”

OCBC said that new measures were anticipated.  "In our view, the market has, to some extent, anticipated measures limiting loan tenures. In Aug 2012, Minister Khaw publicly warned against taking on 50-year mortgage loans offered by a domestic bank. In addition, after QE3 was announced in Sep 2012, Hong Kong authorities imposed a 30-year cap on new mortgages, and it was widely expected that Singapore could follow suit," it said in a research note.

Preventive, not punitive, in nature

OCBC said that given that the average loan tenure in Singapore is still at a relatively acceptable 29 years currently, the latest measures is seen as mostly preventive, rather than punitive, in nature.

"They would curtail the (already burgeoning1) role of loan tenure structuring, as interest rates bottom out, in propogating leverage and a meaningful second wing to housing price appreciation. However, other key liquidity drivers, such as low forward rates, easy loan access and healthy system liqudity, would likely continue to be conducive for housing demand," it said.

Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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