SINGAPORE - The Monetary Authority of Singapore's (MAS) proposed new regulations to tighten mortgage equity withdrawal loans (MWL) should have little impact on the property market if they are eventually introduced.

Market players, who include mortgage loans brokers, said this is because most buyers who aim to cash out on the value of their homes are not the average home owners or property investors.

Instead, they - usually high-net-worth individuals -account for a small portion of all property buyers. They are also said to be financially savvy and typically use the extra liquidity to re-invest in other instruments, market experts said.

Loans brokers MediaCorp spoke to said financial institutions are also unlikely to dispense MWL for a second or subsequent property, in an effort to discourage speculating on the property market.

While the Government has further reduced loan-to-value (LTV) ratios for mortgage loans to cool the property market, the MAS proposed that the LTV ratios of mortgage equity withdrawal loans be reduced as well.

MAS' consultation paper, which was put out on Jan 13, proposes that MWL be reduced to an LTV of 80 percent for individuals with no outstanding mortgages and 60 per cent for individuals with more than one outstanding mortgage.

For non-individuals like corporations, they are subject to 50 per cent LTV if they have more than one outstanding mortgage.

The consultation paper is currently open for feedback until Feb 14.

MWL allows homeowners to take out loans using their property as collateral. The amount of MWL taken out depends on the current valuation of the property.

For example, a property owner has a house worth $1 million and he has an outstanding loan of $200,000. This means the maximum amount he can receive from an MWL is $400,000.

This adds up to $600,000 in total loans, which translates to 60 percent of the $1 million valuation.

And in a property upswing, homeowners can cash out more from a higher property valuation. But such practices are not widespread and hence should not have a serious impact on the property market.

"What will really dampen sentiment are the new cooling measures on conventional housing loans, which are used largely by home buyers, instead of mortgage equity financing loans," said Mr Dennis Ng, founder of www.HousingLoanSG.com.

"MAS wants to ensure that all measures are in line for both types of loans to curb speculation," he said.

Such loans have been around before the property measures kicked in, said Mr Ku Swee Yong, chief executive of International Property Advisor.

"Financial institutions may tend to benefit from such loans because it is backed by an asset, hence it is lower risk. The home buyer who has paid off the property entirely has also demonstrated to the bank that he is unlikely to default on his payments." he added.

But loan brokerage firms may see less business if this proposed scheme is introduced, said market players.

"With interest rates looking flat and with the current curbs, business will be still for some time," said Mr Bryan Ong, founder of property loans brokerage BC Group.

by Jo-Ann Huang Limin
05:55 AM Jan 31, 2011

Source: www.yodayonline.com

Government measures are most effective when they are unexpected. That was why I concluded last week that the single most effective move was not the measures themselves but the timing of their introduction.

In economics, this topic is covered under the expectations theory. If the market expects the announcement, players will take positions that will nullify some of its effectiveness.

Looking at the latest round of cooling measures, the tools are not very different from the previous rounds except that they come with more punitive conditions.

The hike in sellers' stamp duty penalises early resale but tellingly, no mention was made of how big the problem was, unless the purpose was to deter property buying for investment by making it less attractive. Indirectly, this confirms for the first time that overly strong sales are also viewed as a problem, not just rapid price growth.

Seller's stamp duty on new properties was raised as much as 16 per cent of the sale price if the home is offloaded within a year of purchase, dropping by 4 per cent each subsequent year till the fourth year.

Given Singapore's strong fundamentals and steady - if not buoyant - economic growth, both local and foreign property investors can do no worse than park their monies in properties here than elsewhere, even if it is for four years. Lest we forget, investment purchases by foreign investors may even grow without any price increases if our local currency appreciates substantially against their home currencies.

Some have commented that the revised stamp duties are like taking a sledgehammer to the market. Are we not underestimating the extent of the problem here? Could anyone have foreseen that we would have reached our fourth set of cooling measures in just sixteen months after the first in September 2009. This works out to be about one set every five months!

Others expect sales volume and home prices in all segments, except at the top-end, to fall.

Let us put ourselves in the shoes of a hypothetical investor. By now, prices have already risen to quite high levels and we are closer to the peak.

Let us say that the investor has resources to buy only one high-end property or four mass market ones. Which is the preferred option? I am almost certain, nine out of 10 will pick the latter. Should the market correct unexpectedly, it is a lot easier to dispose of the lower-priced properties. In a sharp correction, most buyers are owner-occupiers and they have affordability issues.

The comment that prices of suburban homes are most vulnerable is also tantamount to saying that many of the developers who participated in the state sales of suburban sites last year did not do their homework if demand is indeed so fragile. You can question their bids but you cannot deny the demand. Let us give them some credit. They are putting their money where their mouths are - it is not just coffee shop talk.

Many are also expecting a price correction for the whole year. I can foresee a short-term correction, if any, because of panic sales in the secondary market. But a correction for the whole year, led presumably by price cuts from developers? Has anyone taken a recent look at their balance sheets after record sales for 2009 and last year? Are these knee-jerk analyses?

In the latest set of measures, we expect potential buyers to act "rationally" and pull back their buying. But are we expecting too much? This is the same group of people who have irrationally ignored the fact that there is more than ample supply in the market. We know that the authorities have been highlighting this fact at every opportunity. Can this group still feign ignorance?

We cannot simply brush this "selective rational thinking" aside because then our line of argument lacks consistency. Then we believe only what we want to believe.

For sure, with each set of measures, a slice of potential buyers are removed from the market but are many of us continuing to under-estimate the depth of liquidity in the markets?

It is worth repeating here what a local pre-eminent economist concluded in a published e-mail exchange with another last year. It is that loose monetary policy invariably leads to asset inflation. There are no two ways about it.

For the economist, the crux of the problem is low interest rates. Not many have bought into or fully understood this yet. Have the latest measures addressed that? If not, I am convinced more cooling measures will be needed until the liquidity problem fully dissipates.

by Colin Tan
05:55 AM Jan 21, 2011


Colin Tan is Head, Research & Consultancy at Chesterton Suntec International.

Source:www.todayonline.com

Published January 15, 2011

CapitaLand chief expects home prices, sales volume to fall

By UMA SHANKARI

CAPITALAND chief executive Liew Mun Leong expects private home prices and sales volume to fall following the latest round of government measures to cool the property market.

But he said he is 'not too unhappy' with the measures as it will make it easier for the group to win land parcels in government tenders.

Describing Thursday's measures as 'incremental', Mr Liew, who helms Singapore's largest listed property group, said some developers are driving up land prices by bidding very aggressively. He was speaking at a lecture at the National University of Singapore yesterday.

'We are amazed at the prices that come out (in government land tenders),' he said. 'Not that we are jealous ... but when we look at the numbers, we know that we can't do it ... So in a way, we agree that there is some speculative chasing for land.'

CapitaLand will go ahead with its plans to launch 1,700 mostly upmarket homes in 2011 as it will be 'business as usual'. The units will come from five projects - The Nassim, Urban Resort Condominium, The Interlace, d'Lee-don and the residential component of a new development at Bedok Town Centre.

The group last week said it expects private home prices to rise by 5-10 per cent in 2011 after climbing 17.6 per cent in 2010. In the high-end segment, prices could climb by 10-15 per cent this year, it said. But yesterday, Mr Liew said prices will fall following the new measures. However, he is still upbeat about the high-end and luxury market, which draws cash-rich investors.

Looking ahead, he said the measures will separate serious developers from speculators: 'These types of measures will differentiate the real estate developers who helped with Singapore's urbanisation from the speculators, who build shoebox apartments.'

But he added that he hopes that just as the government has been quick to act in a property upcycle, it will also work to fine- tune its policies in a down-market when demand tapers off.


Source; www.businesstimes.com.sg

Published January 15, 2011

MAS to tighten up on mortgage equity loans
Such loans to face the same loan-to-value limits as the latest property measures

By SIOW LI SEN

THE Monetary Authority of Singapore (MAS) has stepped in to close a loophole on mortgage equity financing (MEF), by imposing the same lower loan limits as the latest property measures.


It has proposed that mortgage equity financing - where banks offer loans based on the owner's equity in their homes - be subject to the same loan-to-value (LTV) limit of 80 per cent for those with only one home loan; 60 per cent if there is more than one home loan; and 50 per cent for non-individual borrowers.

By restricting the amount that can be borrowed through mortgage equity financing, MAS has cut off or severely narrowed one route for property buyers who need to raise more cash if they want to buy a second or third property.

Currently, there is no LTV rule on MEF though most banks lend 70-80 per cent of the value of the house.

MAS said the mortgage equity withdrawal loans (MWL) are subject to the financial institutions' (FI) credit assessment of the borrowers. 'Practices among FIs vary in the LTV limits that are applied . . . As a prudential measure, MAS plans to require FIs to comply with regulatory LTV limits on MWLs. The purpose of this policy is to apply the regulatory LTV limits, not just to loans used to purchase residential property, but to loans secured on residential property as well,' it said.

MAS also said that when assessing the LTV computation, FIs should aggregate loans taken from moneylenders, if any, which are used to pay for the property.

MEF would have become more prevalent given the sharp run-up in property prices and is popular with borrowers as banks charge a much lower interest rate compared with unsecured loans.

Last year, private home prices rose 17.6 per cent and have since eclipsed the previous 1996 peak.

The interest rate charged on MWLs if structured as an overdraft is typically the bank's prime rate plus 1 or 2 per cent, against double-digit rates for unsecured loans. The average prime rate here is 5.38 per cent.

Also, like overdrafts, borrowers pay interest only on the amount they use.

Banks said MEF is not a big business though many advertise it on their websites and some target customers whose home loans have been paid down.

A Maybank spokeswoman said: 'We have always adopted a prudent approach to MWLs and offer a lower quantum than for financing purchases of property.'

Dennis Khoo, Standard Chartered Bank Singapore's head of consumer banking, said the bank offers mortgage equity financing as part of its comprehensive suite of mortgage solutions.

'The same loan review and credit assessment process are applied across all mortgage loan applications, including looking at the customer's total credit facilities, monthly income and repayment habits,' he said. 'Responsible lending is our priority - the important thing for us is to work with our customers to ensure we strike a balance between the need for financing and the ability to service the loan.'

The deadline for written feedback on the above proposal is Feb 14.


Source: www.businesstimes.com.sg

Published January 15, 2011

Sitting pretty in the new property landscape
The latest property curbs are tough, but two groups might find themselves in a sweet spot

By UMA SHANKARI

THE latest round of measures to cool Singapore's property market, introduced on Thursday, have to be viewed together with all the government interventions in the market over the last two years.


Analysts believe that this last blow could kill off any positive sentiment left in the property market.

The last three rounds of demand-side cooling measures were introduced in September 2009, February 2010 and August 2010. These caused short-lived declines in volumes but had no visible impact on pricing - similar to what happened in Hong Kong.

But this time, it will be different. A significant fall in transaction volume is expected almost immediately. Analysts also expect private home prices to correct by 5-10 per cent in 2011 as the government's two-pronged strategy of releasing more land and controlling demand makes its impact.

Market watchers will remember that together with measures to curb demand, the government has boosted supply significantly over the last two years. It released record supplies of land for residential development in both H2 2010 and H1 2011. This, together with the latest measures, may prompt some investors to exit the market.

'We think owners are more likely to sell their units given the persistent measures and large upcoming supply due for completion in 2013 of 11,600 private and 18,300 HDB units,' said Morgan Stanley analysts Brian Wee and Wilson Ng.

The pool of available buyers will also shrink. Noted Citigroup analyst Wendy Koh: 'Except for genuine home buyers and long-term investors, potential buyers are likely to think twice before committing to a property now.'

It now appears that two sets of buyers are in a sweet spot: first-time home buyers, and buyers with deep pockets (a large number of whom are foreigners). They can now wait for prices to fall before choosing homes from the boosted supply.

Buyers looking to buy their first property remain untouched by the new rules. The government's move to slash the loan-to-value (LTV) limit on housing loans from 70 per cent to 60 per cent for individual buyers only affects those with one or more outstanding housing loans.

Buyers with deep pockets will also benefit. Analysts say that the most severe measure is a sharp hike in the seller's stamp duty to 16 per cent, 12 per cent, 8 per cent and 4 per cent respectively for properties that are sold in the first, second, third and fourth year after purchase.

This is a sharp increase from previously when sellers were subject to a stamp duty of only up to 3 per cent if they sold within the first three years. The new rule applies for properties that are bought on or after Jan 14.

Buyers with deep pockets can now take advantage of falling prices to hunt for luxury homes and trophy assets, and wait out the four years before re-selling their properties. They are also unlikely to be deterred by having to fork out 40 per cent in cash upfront.

Cash-rich foreign buyers fall into this category. The government has not introduced any specific measures to control property purchases by foreigners.

Looking forward, three segments of the market may prove to be interesting:


New launches

The new measures could put off property investors at recent launches. It remains to be seen how many will let their options lapse.

Those who exercised their options before Jan 14 will not be affected by the new LTV and seller's stamp duty changes. Those who didn't will now be subject to the harsher regime. One view is that buying decisions could be put off for up to one year as investors wait for the market to settle.


Secondary market

Units in the secondary market as well as newly-completed properties with Temporary Occupation Permits (TOPs) may prove to be somewhat more resilient than new launches.

If a buyer is genuinely looking to upgrade, he can sell his existing property and apply for a new loan for his new home.

The new loan will then be classified as the buyer's first loan, allowing him to borrow up to 80 per cent of the property's value. In this scenario, completed properties have an edge over new launches as units will be ready to move into.


Collective sales market

The latest round of measures could kill off the fledgling collective sales market.

Developers BT spoke to said that owners' asking prices are already too high. With these measures, home prices are likely to come down, making it even harder for a developer to break even after paying a high price for land.

'Reports of en bloc activity for smaller land plots at rising prices have intensified of late,' said CIMB analyst Donald Chua. '(This) could now ease as developers adjust pricing and demand expectations of final products.'

Corporate buyers looking for bulk purchases in residential properties will also be discouraged. The government has reduced LTV limits for corporate buyers to just 50 per cent.

'This will curb price growth for en bloc transactions and prime property bulk deals by private funds may dwindle,' said Royal Bank of Scotland (RBS) in a note.

All said, the latest measures will shake up the local property sector and expose the weak players.

In short, it will separate the men from the boys.


Source: www.businesstimes.com.sg

Published January 14, 2011

COMMENTARY
A cold shower on hot money

By KALPANA RASHIWALA

THE Singapore government yesterday acted defensively to stem the tide of hot money flowing into the island's housing market. This comes in the light of recent steps taken by Chinese and Hong Kong authorities to guard against property asset bubbles in their markets.


The latest measures are also the most severe announced till now to cool Singapore's housing market. Analysts say transactions will slide and so will prices. 'There's 100 per cent certainty these measures will work to cool the market,' declared Knight Frank chairman Tan Tiong Cheng.

The sharp spike in seller's stamp duties is even harsher than the May 1996 anti-speculation measures that had treated gains from sales of properties within three years of purchase as taxable income. Whereas that tax applied only to those who profited from flipping their properties, the latest set of hefty seller's stamp duties must be paid regardless of whether the seller makes a gain or loss.

Now, even if a property speculator or investor decides to simply cut a loss in future, he'll be liable to pay the hefty seller's stamp duty (SSD). This is a more severe deterrent to investing or speculating in property than the old 1996 tax.

In letter, the new SSD rates apply to those who buy a private home from today. In reality, they will also frustrate existing home owners' efforts to offload their properties as buyers become scarce since anyone who buys from today will be hit with the new SSD regime.

For those who buy a private residential property from today and sell it within the next 12 months, the seller's stamp duty will be 16 per cent of the sale consideration (much higher than the up to 3 per cent currently). If the property is disposed of in its second year of purchase, the SSD is 12 per cent (again higher than the up to 2 per cent currently). The SSD is fixed at 8 per cent if the property is sold in its third year of purchase (higher than up to 1 per cent currently). The government is also extending SSD for sale of properties in the fourth year of purchase, with the rate fixed at 4 per cent.

What the new SSD rates effectively mean is that short-term speculators would have to be confident of being able to clear a profit hurdle of about 20 per cent (comprising the 3 per cent stamp duty payable when buying the property and the 16 per cent SSD when divesting it within a year) before they'd find it worth their while to enter the market.

Following HK's example

The SSD package is somewhat similar to what Hong Kong authorities announced in November. Under those measures, homes sold within six months of purchase attract an extra 15 per cent stamp duty; the rate is 10 per cent for properties resold between 6 and 12 months; and 5 per cent for those resold between 12 and 24 months.

The Hong Kong government also raised downpayments for homes (depending on their value) and lowered the loan-to-value (LTV) limit for non-owner occupied residential properties and those held by corporates to 50 per cent.

Yesterday, Singapore's authorities too announced a lowering of the LTV limit (from 70 or 80 per cent currently) to 50 per cent on housing loans granted to corporates, trusts and other non-individual buyers.

Analysts suggest that this measure could have been triggered by recent bulk purchases of units in new residential developments which help developers achieve more pricing power.

As well, the Singapore authorities are further reducing the LTV limit on housing loans from 70 per cent to 60 per cent for new purchases by individual home buyers with one or more existing housing loans. This should further foster financial prudence and reduce over-exposure to the property market among Singapore households. After all, the hot money coming in from overseas can easily leave the local property market, and Singaporeans may be left holding the baby from a property downturn.

The latest package is the biggest bomb the government has dropped from its arsenal to cool the property market - and this will no doubt unnerve market players.

But the measures are not intended to cause a severe crash in the market and if that threatens to happen, the government can quite easily withdraw them.

On a brighter note, those who have been waiting for a price correction to enter the market may now see their wish fulfilled.


Source; www.businesstimes.com.sg

Published January 14, 2011

New measures expected to slow down home loans
They will eliminate speculators, rein in prices, say bankers

By SIOW LI SEN

(SINGAPORE) Bankers are bracing for a slowdown in home loans as buyers take stock of the government's latest property measures to dent the buoyant market.

The latest restrictions, the third in 12 months, are considered fairly drastic as they call for cash of as much as 50 per cent to buy a property in some cases. They could eliminate a lot of potential buyers.

In addition to increasing the holding period to four years from three for seller's stamp duty, the lower loan-to-value (LTV) for property purchasers who are not individuals is now 50 per cent.

That means a buyer will have to fork out $500,000 in cash for a $1 million home. And for individuals with one or more outstanding housing loans, the LTV limit on home loans will be lowered from 70 per cent to 60 per cent.

The latest measures will weed out speculative activities and further deter potential investors because of the higher cash outlay and a higher breakeven price to be achieved with a significant increase in stamp duty when the property is sold within four years, said a UOB spokeswoman.

Lui Su Kian, DBS senior vice-president and head of deposits and secured lending, said the bank has always encouraged home buyers to be prudent as a home loan is a long-term commitment.

'These new measures are likely to affect investors who would have to commit higher cash amounts for their down payments,' said Ms Lui.

As it is nearing the Chinese New Year, generally a quiet period for the market, it will take some time to ascertain the impact of the new measures, she added.

'The new property measures will have an impact on new housing loan applications, as we expect potential homebuyers to be more cautious and will take their time to review their options,' said Phang Lah Hwa, OCBC Bank's head of consumer secured lending.

Housing loans have been the biggest driver of bank loan growth, though there are signs of slowing growth. In November 2010, the latest data available, housing loans rose 1.7 per cent over the month - and 22.1 per cent over the year - to $110.9 billion at end-November. The annual pace of growth has been slowing since August, when it reached 23.4 per cent.

The 50 per cent LTV will hit a lot of mini-developers, sometimes comprising small groups of friends or relatives who join hands to buy a few, typically older properties, do them up and sell for a quick profit.

'I know of friends who banded together to buy two old properties. One of them is a contractor so he did them up cheaply, and they've sold them and they've made half a million,' said one banker.

Bankers expect the latest measures to rein in property prices, unlike those announced last year, which had little impact.

Vibha Coburn, Citibank Singapore business director, secured finance solutions, said a stable property market is good for the economy and Singaporeans.

'These new measures will help to reduce speculation in the market and owner-occupiers will continue to have opportunities to get their dream homes.'

Dennis Khoo, Standard Chartered Bank Singapore head of consumer banking, said the new measures will curb speculation and create greater home ownership opportunities. 'We'd like to reinforce that, the majority of the mortgage customers are homeowners. In this regard, while we will continue to monitor customer sentiments closely, we feel that the new measures will have minimum adverse impact on the bank.'


Source; www.businesstimes.com.sg

What the Govt property measures mean to you

by Phang Lah Hwa
05:55 AM Jan 15, 2011

With the latest round of Government measures, there might be concerns among first-time home buyers, those looking to upgrade their properties as well as property investors on how they will be impacted. Let me share my views:


First-Time Home Buyers and Property Upgraders

For first-time home buyers, you need not worry as these measures do not impact you directly. You will still be able to obtain loans of up to 80 per cent of the property value or purchase price, whichever is lower, if you fulfil the borrowing criteria of the bank.

As for property upgraders, you may still qualify for an 80-per-cent loan if the document for the sale of your existing property and the loan redemption statement can be submitted at the point of applying for a new loan.



Property Investors

The latest measures will have an immediate impact for those who are considering to invest in a second or subsequent property and have an existing mortgage loan.

Foremost, the capital outlay will be increased as a result of the drop in the permissible loan quantum at 60 per cent. The mandatory cash component remains unchanged at 10 per cent of the property value.

To illustrate, if the intended property to be purchased is $1 million, you can obtain a maximum loan of $600,000. A minimum $100,000 (10 per cent of the property value) must be paid in cash, while the remaining $300,000 can be funded with a combination of cash and CPF.

Your next concern will be the significant increase in the seller's stamp duty. If the property is sold within the first year from purchase date, the applicable stamp duty will be a hefty 16 per cent.

This percentage reduces to 12 per cent, 8 per cent and 4 per cent, if your property is sold in the second, third and fourth year respectively.

Hence, you should be prepared to hold for a longer term, at least four years from the date of purchase. Should you wish to sell within the four-year period, you should carefully weigh your capital gains versus the stamp duty and other ownership cost such as interest, legal charges and taxation.

For those who are considering setting up an investment holding company for your property portfolio, you should note that the permissible loan quantum is now capped at 50 per cent.

Putting regulatory impact aside, it is important for you to be comfortable with the overall financial commitments, such as your home loan instalment and maintenance fees.

Hence you should carefully review the variety of loan packages in the market, in order to select one that meets your needs. Only then can you benefit from your investment.



The writer is OCBC Bank's head of consumer secured lending.


Source: www.todayonline.com

by Joanne Chan
05:55 AM Jan 15, 2011

SINGAPORE - The latest round of cooling measures introduced by the Government, which kicked in today, appears to have created some knee-jerk reaction in the private property market.

MediaCorp understands that some sellers rushed to close deals before midnight to avoid the new rules. Others have pulled their properties from the market.

Property firms told MediaCorp that they have received many enquiries from prospective buyers and sellers after news of the new restrictions broke on Thursday.

First-time private property buyer Christopher Ng, 36, was rushed by his agent into making an offer for a house last night, as the seller wanted to close the deal quickly. However, Mr Ng was pipped to the deal by another buyer.

Mr Ng added: "My other agents actually called me and said that most of the listings have been delisted and so the supply has shrunk."

Dennis Wee Group director Chris Koh said he knew of a buyer who immediately exercised the option to purchase, once the news of the new measures were announced.

The seller's stamp duty has been raised to a maximum of 16 per cent on property sold within the first year, a steep jump from the previous 3 per cent.

Banks will also reduce the maximum loan they extend to those who already have one or more mortgages to 60 per cent of the property value.

While other property analysts felt it was premature to assess the full impact of the measures, Propnex CEO Mohd Ismail said he expects 20 per cent of buyers who had bought properties recently to rethink their transactions.

Buyers who have paid a deposit but do not exercise the option to purchase might forfeit the fees - amounting to 1 per cent of the property's value - which they have paid.

Source; www.todayonline.com