01-12-2012, 12:59 AM
Tue, Nov 27, 2012
The Straits Times
Home loan cap insures against the unexpected
Rachel Chang
Link: http://business.asiaone.com/A1Business/P...86071.html
The restrictions on home loans are designed to making "holding" harder to prevent too many Singaporeans from being double-property owners. -ST
EYE ON SINGAPORE
THE new restrictions on the length and size of loans that homebuyers can take has put a dent in a fairly common Singaporean dream.
That is to own two (or more) properties - one to live in, the other from which to draw a passive stream of rental income.
This dream is fuelled, in the words of business manager Ho C. J., 39, by faith that the property market will continue on an upward trend, even if there are blips in between.
The father of one recently moved his family to a Marine Parade condominium, and is renting out their Simei flat to a foreign couple. In Singapore's property market, he declared, "if you can hold, you sure win".
Many agree. In 2010, the latest year for which figures are available, 38 per cent of those who took out a new home loan already had an existing home loan.
As a result of this behaviour, there are now 55,701 people with two or more home loans from banks, according to Credit Bureau Singapore (CBS). This is 12.5 per cent of all mortgage-holders, up from 9.7 per cent in 2007.
Of these 55,701 borrowers, one in five own an HDB flat.
The new restrictions on home loans, handed down by the Monetary Authority of Singapore (MAS) in October, are designed to making "holding" harder - and hence to prevent too many other Singaporeans from joining Mr Ho as a double-property owner.
This is because the regulator fears that many who aspire to the dream are simply dreaming too big.
In the current global environment of easy credit, nourished again last month by the US' latest round of quantitative easing, some may over-extend themselves and sink everything they have into a second or third property, contributing to property price inflation that will in turn give false confidence to the very same over-stretched investors.
A vicious cycle begins, and the correction, when it comes, will be brutal just like in 1997. Homebuyers who lived through that crash were underwater for a full decade until 2007. Better pre-emptively rain on the parade than risk having to prick a bubble, went the Government's reasoning.
MAS' brisk measures on Friday capped all home loans at 35 years. And if one wants to take a loan beyond 30 years, or which extends past retirement age of 65 years old, a substantial amount of cash would now be required.
If it is the first home loan, the buyer would have to put down a 40 per cent downpayment in cash, up from 20 per cent before. If it is his second or more loan, this would rise to 60 per cent, up from 40 per cent before.
To put things in perspective, if Mr Ho had bought his Marine Parade condominium now and not earlier, he can take only a 25-year loan, not a 30-year one, as this would extend past his retirement age. What this translates into is $551 more every month, said director of home loan comparisons website SmartLoans.sg Timothy Kua.
Or, he would have to stump up an extra $250,000 in cash for the downpayment to proceed with a 30-year loan. His double property dream, said Mr Ho, would have been dashed.
Little wonder, then, that there has been some grumbling among market watchers and prospective buyers that MAS has come down too hard.
Some point out that house prices are rising only at a moderate pace. In the third quarter of this year, the HDB's resale price index rose 2 per cent, while private property prices rose just 0.5 per cent. Other house-hunters like security company boss Paul Lim, 41, who has a condominium in Farrer Park and is looking out for a second property, argue that rental income from a second property is the most accessible option of financial comfort for the average Singaporean.
"We're planning for our 60s and 70s, we want to work but we don't want to slog for money. We want the passive income and property is the simplest thing for most people to understand," he said.
This is especially since there is a perceived lack of stable, alternative investment vehicles for the average Singaporean.
"People have tried other forms of investment like stocks, shares, gold, commodities," said Chesterton Suntec International research head Colin Tan.
"They probably got burnt. Or they felt that their heart cannot take the excitement."
Singapore's property market, on the other hand, is famed worldwide for its buoyancy, he noted. Those now shut out of it may feel that they have few other avenues for their cash.
Savills Singapore research head Alan Cheong pointed out that rental income from a second property is also a way for Singaporeans to profit from a sizeable foreigner contingent that has so inflamed passions elsewhere in society.
"Singaporeans benefit from renting out apartments to foreigners," he said. "To stop them from owning more than one property is to prevent them from reaping these gains."
The bigger these gains, the more politically unpopular will be any move to curtail them. But this is perhaps precisely the reason to do it.
The faith that the average Singaporean has in the property market is not necessarily misplaced, but it fails to take into account the fact that real estate has taken on a life of its own in a different direction from the real economy.
Tomorrow's flash estimates of third-quarter gross domestic product growth from the Ministry of Trade and Industry will probably show that the economy just narrowly avoided a technical recession - two consecutive quarters of contraction.
But even as growth weakens, the property market redoubles its surge - not just rising, but at a faster pace every quarter this year.
The HDB's resale price index grew at 0.6 per cent in the first three months of the year, then 1.3 per cent in the second quarter, and 2 per cent in the third.
Private property prices dipped 0.1 per cent in the first quarter, then rose 0.4 per cent in the second and 0.5 per cent in the third.
"Real estate should be derived demand from economic activity," said Mr Cheong. "But in Singapore, it seems like real estate is the demand that's powering the economy."
The cheap money sloshing around the region, left to its own devices, will only sharpen this disjointment as it inflates the value of all assets, said analysts.
How big the approaching iceberg is below the surface is best judged by the regulator with its macro view of the economy.
It may help in understanding MAS' perspective to note that any property market crash now could be several times more severe than the 1997 crisis in sheer scope.
Then, about 9,000 private properties were sold per year, with 25,000 units in the pipeline. Now, close to 20,000 properties are sold per year, with 86,000 units in the pipeline.
Seen in this light, what the regulator has done is perhaps not to take away the Singapore dream of owning more than one property, but to postpone it.
It has not made it impossible for Singaporeans to be landlords and enjoy their stream of passive rental income, but to make sure that they can financially survive any unexpected outcome of their investment.
In so doing, it also increases the likelihood that, for these dreamers that lead leveraged lives, the eventual correction will be just that - and not a crash.
rchang@sph.com.sg
The Straits Times
Home loan cap insures against the unexpected
Rachel Chang
Link: http://business.asiaone.com/A1Business/P...86071.html
The restrictions on home loans are designed to making "holding" harder to prevent too many Singaporeans from being double-property owners. -ST
EYE ON SINGAPORE
THE new restrictions on the length and size of loans that homebuyers can take has put a dent in a fairly common Singaporean dream.
That is to own two (or more) properties - one to live in, the other from which to draw a passive stream of rental income.
This dream is fuelled, in the words of business manager Ho C. J., 39, by faith that the property market will continue on an upward trend, even if there are blips in between.
The father of one recently moved his family to a Marine Parade condominium, and is renting out their Simei flat to a foreign couple. In Singapore's property market, he declared, "if you can hold, you sure win".
Many agree. In 2010, the latest year for which figures are available, 38 per cent of those who took out a new home loan already had an existing home loan.
As a result of this behaviour, there are now 55,701 people with two or more home loans from banks, according to Credit Bureau Singapore (CBS). This is 12.5 per cent of all mortgage-holders, up from 9.7 per cent in 2007.
Of these 55,701 borrowers, one in five own an HDB flat.
The new restrictions on home loans, handed down by the Monetary Authority of Singapore (MAS) in October, are designed to making "holding" harder - and hence to prevent too many other Singaporeans from joining Mr Ho as a double-property owner.
This is because the regulator fears that many who aspire to the dream are simply dreaming too big.
In the current global environment of easy credit, nourished again last month by the US' latest round of quantitative easing, some may over-extend themselves and sink everything they have into a second or third property, contributing to property price inflation that will in turn give false confidence to the very same over-stretched investors.
A vicious cycle begins, and the correction, when it comes, will be brutal just like in 1997. Homebuyers who lived through that crash were underwater for a full decade until 2007. Better pre-emptively rain on the parade than risk having to prick a bubble, went the Government's reasoning.
MAS' brisk measures on Friday capped all home loans at 35 years. And if one wants to take a loan beyond 30 years, or which extends past retirement age of 65 years old, a substantial amount of cash would now be required.
If it is the first home loan, the buyer would have to put down a 40 per cent downpayment in cash, up from 20 per cent before. If it is his second or more loan, this would rise to 60 per cent, up from 40 per cent before.
To put things in perspective, if Mr Ho had bought his Marine Parade condominium now and not earlier, he can take only a 25-year loan, not a 30-year one, as this would extend past his retirement age. What this translates into is $551 more every month, said director of home loan comparisons website SmartLoans.sg Timothy Kua.
Or, he would have to stump up an extra $250,000 in cash for the downpayment to proceed with a 30-year loan. His double property dream, said Mr Ho, would have been dashed.
Little wonder, then, that there has been some grumbling among market watchers and prospective buyers that MAS has come down too hard.
Some point out that house prices are rising only at a moderate pace. In the third quarter of this year, the HDB's resale price index rose 2 per cent, while private property prices rose just 0.5 per cent. Other house-hunters like security company boss Paul Lim, 41, who has a condominium in Farrer Park and is looking out for a second property, argue that rental income from a second property is the most accessible option of financial comfort for the average Singaporean.
"We're planning for our 60s and 70s, we want to work but we don't want to slog for money. We want the passive income and property is the simplest thing for most people to understand," he said.
This is especially since there is a perceived lack of stable, alternative investment vehicles for the average Singaporean.
"People have tried other forms of investment like stocks, shares, gold, commodities," said Chesterton Suntec International research head Colin Tan.
"They probably got burnt. Or they felt that their heart cannot take the excitement."
Singapore's property market, on the other hand, is famed worldwide for its buoyancy, he noted. Those now shut out of it may feel that they have few other avenues for their cash.
Savills Singapore research head Alan Cheong pointed out that rental income from a second property is also a way for Singaporeans to profit from a sizeable foreigner contingent that has so inflamed passions elsewhere in society.
"Singaporeans benefit from renting out apartments to foreigners," he said. "To stop them from owning more than one property is to prevent them from reaping these gains."
The bigger these gains, the more politically unpopular will be any move to curtail them. But this is perhaps precisely the reason to do it.
The faith that the average Singaporean has in the property market is not necessarily misplaced, but it fails to take into account the fact that real estate has taken on a life of its own in a different direction from the real economy.
Tomorrow's flash estimates of third-quarter gross domestic product growth from the Ministry of Trade and Industry will probably show that the economy just narrowly avoided a technical recession - two consecutive quarters of contraction.
But even as growth weakens, the property market redoubles its surge - not just rising, but at a faster pace every quarter this year.
The HDB's resale price index grew at 0.6 per cent in the first three months of the year, then 1.3 per cent in the second quarter, and 2 per cent in the third.
Private property prices dipped 0.1 per cent in the first quarter, then rose 0.4 per cent in the second and 0.5 per cent in the third.
"Real estate should be derived demand from economic activity," said Mr Cheong. "But in Singapore, it seems like real estate is the demand that's powering the economy."
The cheap money sloshing around the region, left to its own devices, will only sharpen this disjointment as it inflates the value of all assets, said analysts.
How big the approaching iceberg is below the surface is best judged by the regulator with its macro view of the economy.
It may help in understanding MAS' perspective to note that any property market crash now could be several times more severe than the 1997 crisis in sheer scope.
Then, about 9,000 private properties were sold per year, with 25,000 units in the pipeline. Now, close to 20,000 properties are sold per year, with 86,000 units in the pipeline.
Seen in this light, what the regulator has done is perhaps not to take away the Singapore dream of owning more than one property, but to postpone it.
It has not made it impossible for Singaporeans to be landlords and enjoy their stream of passive rental income, but to make sure that they can financially survive any unexpected outcome of their investment.
In so doing, it also increases the likelihood that, for these dreamers that lead leveraged lives, the eventual correction will be just that - and not a crash.
rchang@sph.com.sg
