Government keeping close tab on property market

Rock-bottom interest rates the flow of overseas money into the market are just the ingredients that could heat up property prices and encourage excessive borrowing.

But the Monetary Authority of Singapore (MAS) said the Government is keeping a close eye on the market and is ready to introduce additional cooling measures if necessary.

MAS’s annual Financial Stability Review warned that the flow of funds from overseas and low interest rates could add more fuel to the red-hot property sector.

Concerns were raised over what is expected to be a ‘sustained period of low interest rates’ where buyers may be tempted to take on excessive borrowing while banks may loosen standards to extend more loans in the face of thinning interest margins.

‘As the property market is sentiment-sensitive, a pick-up in activity could lead to rapidly escalating prices,’ said the MAS.

‘In turn, if economic recovery dis-appoints on the downside amid continued uncertainties in the global economy and market confidence is dented, prices could fall.’

This could have widespread implications on buyers who are overextended when interest rates eventually go back up.

But the Government will keep monitoring the property market and adopt additional cooling measures if needed.

In August, the Government imposed measures to tighten ownership rules on buyers of HDB flats, set new loan limits and increased the amount of time a buyer must hold a property before reselling it. This is after similar moves in February and September last year which were also brought in to curb rocketing prices.

Urban Redevelopment Authority figures are showing signs of a moderation. Private property prices were up just 2.9 per cent in the third quarter compared with the 5.3 per cent jump in the second quarter.

However, soaring property valuations – a by-product of Singapore’s strong economic growth – have helped lower the relative indebtedness of home owners with mortgages.

The share of outstanding loans to the value of the property fell significantly in the third quarter. This is because as a property’s value goes up, the ratio of the loan to its value falls.

The proportion of mortgages with loan-to-value (LTV) ratios above 80 per cent dropped from 17.3 per cent in the third quarter last year to just 7.1 per cent this year.

LTV ratios above 70 per cent also fell, from 35.1 per cent to 27 per cent over the same period.

Ku Swee Yong of International Property Advisor said lower LTV ratios point to a systemically sound lending environment.

‘It is not a risk from a financial institution’s viewpoint because with the low LTV ratio, the banks can withstand, say, up to a 20 per cent drop in property prices, without calling on the margin of the borrower,’ said Mr Ku.

‘For home owners, the news will also be a comforting thought.’

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