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The Straits Times
Nov 17, 2011
Fewer taking up second home loan

Dip in number shows cooling moves have cut investor demand: Experts

By Esther Teo

NEW figures suggest that investors looking to profit from Singapore's residential market are scaling back their purchases in the wake of government cooling measures aimed squarely at speculators.

Data from the Credit Bureau Singapore (CBS), gathered from banks, shows a significant dip in the proportion of buyers, who already have an existing loan or loans, taking out new property loans.

The figure fell to 33 per cent in the first eight months of this year, down from 38 per cent for all of last year.

Buyers entering the market with existing loans tend to be investors, according to experts.

However, it does not follow that those taking out a new loan with no existing mortgage are necessarily first-time home buyers, as they may also be investors.

CBS noted that these buyers may have a home that is fully paid off or are owners of public flats with an HDB loan. As a result, the data could be underestimating the number of investors in the market.

PropNex chief executive Mohamed Ismail noted that there was a 'significant' number of home buyers with HDB addresses at recent mass market launches. They could be genuine upgraders or investors.

But it is evident that the tough cooling measures in January, including tighter financing rules, have cut some investor demand, experts say.

Prior to that, the Government had implemented cooling measures in February and August last year, and in September 2009.

The latest new rules included a reduced loan-to-value (LTV) ratio of 60 per cent for those with an existing home loan, down from 70 per cent before.

A home buyer will now have to stump up 40 per cent of the property price upfront. This will mean a hefty $400,000 in cash and Central Provident Fund savings, for example, for a $1 million apartment.

Another measure imposed significantly higher stamp duty - of up to 16 per cent - on sellers if the property is sold within a year. And the sellers' stamp duty is payable if a property is sold within four years, up from three years previously.

A total of 50,588 people took out loans from January to August this year, 6 per cent down from 53,803 in the same period last year, CBS said.

Experts say the LTV rule that requires home buyers to fork out more cash upfront is likely to be the main deterrent for property investors.

With home prices rocketing up 18 per cent last year, and 6 per cent in the first nine months of this year, the cash component has also ballooned, correspondingly reducing the buyer pool, they added.

SLP International research head Nicholas Mak said the fall in the number of loan holders with an existing mortgage showed that the lowering of the LTV ratio, in particular, 'was effective and had an impact'.

PropNex's Mr Ismail said he was not surprised by the drop. The rules had the dual effect of ensuring that financial institutions here were not overexposed, and that buyers practised prudence in their home purchases, he added.

Mr Steven Tan, OrangeTee's executive director of residential, said the current 33 per cent figure is 'healthy and acceptable' and it is unlikely that further measures are needed.

'The Government's intention to reduce the gearing of purchasers has been effective. The reduced gearing will mean that Singaporeans are less overexposed and, should interest rates rise or if the residential market turns, they will be less affected,' he said.

However, he noted that developers have been building smaller apartments with lower overall selling prices that remain affordable to buyers, in reaction to these policy changes.

The CBS data also showed that loans under $1 million continue to dominate. Nine in 10 of all new loans taken out since the start of last year fall in that category. This is an indication that suburban homes remain the main driving force of the property sector.

Last month, mass market homes made up 64 per cent of new private home sales on the back of healthy interest from HDB upgraders and first-time home buyers, Urban Redevelopment Authority data showed.

CBS collects data from all major banks. Owners who refinance or switch to a new home loan, either with an existing bank or another institution, are also included in the data.

But the number of borrowers may be overstated as it includes joint applicants for a loan - two or three people, such as family members, may be applying for one loan.

esthert@sph.com.sg