Saturday, October 6, 2012

Latest measures more pre-emptive than cooling


04:45 AM Oct 06, 2012

If not viewed in the light of the possibly harmful effects of the US Federal Reserve's third round of quantitative easing (QE3) and other stimulus measures by monetary authorities around the world, the "cooling" measures announced yesterday by the Monetary Authority of Singapore (MAS) may be seen as the first attempt at curbing the abnormally robust property buying seen this year.

Private home prices rose 0.5 per cent in the third quarter from the April-June quarter, according to the Urban Redevelopment Authority's flash estimate. It may the biggest quarterly rise this year but, really, did we even notice it? We know that prices are already at a high level but can we really tell whether they are higher? Ditto for the 1 per cent rise for homes in the suburbs.

So, price growth is not really a problem now, but it may be in the future - which means the latest measures are more pre-emptive than cooling.

What about purchases? At first reading, the measures appear daunting. Besides the cap of 35 years on all new housing loans, higher loan-to-value (LTV) limits apply to mortgages exceeding 30 years and where the loan term ends beyond the borrower's retirement age of 65 years.

These will likely bring down the average loan term quite significantly. The adverse impact on the volume of home sales depends on how much liquidity presently resides in the hands of buyers. Most buyers I know accept longer loan terms simply because the banks offer them.

At this point, I am tempted to say that home buying will be significantly curtailed. Developers will now think twice before raising prices and may even be forced to cut prices if sales are not moving.

But, crucially, the measures do not force banks to lend at a higher mortgage rate. If another wave of liquidity were to hit Singapore as the MAS expects, banks would have even more cash than channels to put that money to work. Already ample liquidity has forced some banks - even before QE3 was announced - to introduce that infamous 50-year home loan.

The more "innovative" of the banks will find incentives to put that money to use. How about "no or close-to-no interest" payments for the first two or maybe three years? And what else? If one bank does not raise its incentives, others doing so will grab more market share.

This may lead us back to square one.



Martin Koh | 86666 944 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
Email: marshe_inc@yahoo.com.sg
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