Home-loan war hots up

The battle among banks here – both local and foreign – to acquire mortgage customers is intensifying as expectations gain ground that the Government will announce new measures to cool the residential property market.

Malaysian bank CIMB, for instance, is offering to charge private-home buyers only 0.65-per-cent more than the three-month Singapore Interbank Offered Rate (Sibor), which is currently at 0.44 per cent, for the first two years of a mortgage.

Another Malaysian bank, Maybank, is asking for 0.5 per cent plus Sibor for the first year.

Local banks are not far behind. DBS is asking for 0.75 per cent additional interest on its Sibor-pegged home packages for the first two years, while UOB is offering Sibor plus 0.85 per cent for a similar lock-in period.

With domestic interest rates likely to remain depressed because of the United States Federal Reserve’s US$600 billion ($780 billion) quantitative easing programme, the key risk is that people will be lured into buying homes using borrowed funds that they may not be able to repay when interest rates go up, analysts said.

While the Government has already announced three rounds of measures to cool the property market here, the Ministry of Finance this week said it would “take additional steps, if necessary”.

Property analysts say the Government may wait for fourth-quarter housing data from the Urban Redevelopment Authority before deciding if more cooling measures are needed. For now, analysts are ruling out drastic curbs on housing demand. Hong Kong last week announced a 15-per-cent stamp duty on houses sold within six months of purchase.

The Government may be “reluctant to enact more cooling measures on the demand side” and prefer to attack the problem from the supply side by increasing land supply, said Mr Colin Tan, head of research and consultancy at Chesterton Suntec International.

Other strategies to soak up excessive liquidity may include reducing the mortgage loan-to-value ratio further, raising mortgage interest rates for those owning multiple properties and increasing stamp duties, analysts say. Harsher measures, such as a capital gains tax, will be a weapon of last resort, they say.

The pace of increase in property prices moderated to 2.9 per cent in the third quarter from 5 per cent in the previous quarter, as a result of the third round of cooling measures introduced in August. Analysts are expecting prices to rise 1 to 2 per cent in the current quarter.

Source : Today – 24 Nov 2010

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