Singapore Caps Residential Loan Tenures After Prices Hit Record

Singapore will restrict home-loan maturities in a bid to curb a housing bubble after property prices in the island-state rose to a record last quarter amid low interest rates.

The maximum tenure for new residential property loans will be capped at 35 years, The Monetary Authority of Singapore said in an e-mailed statement yesterday. It will also impose tighter loan-to-value limits for loans exceeding 30 years, it said. The rules, which will become effective Oct. 6, will apply to both private properties and Housing Development Board flats.

“This can be seen as another round of property curbs,” Nicholas Mak, Singapore-based executive director at SLP International Property Consultants, said in a phone interview. “The government is taking preventive measures. It’s trying to reduce the amount of credit to investors. With interest rates expected to remain low, it could encourage more risky investments.”

The government has been trying to rein in residential property prices since 2009. It has barred interest-only loans for some housing projects, stopped allowing developers to absorb interest payments, imposed additional taxes on foreigners and companies buying properties, and moved to curb the increasing trend of so-called shoebox apartments.

Banks in Singapore have been offering home loans with tenures of as long as 40 years, with United Overseas Bank Ltd. even extending a 50-year loan. Priyia Paramajothi, a Singapore-based spokeswoman at UOB, Southeast Asia’s third-largest lender, declined to comment on MAS’s statement yesterday.

Credit Growth

Low interest rates are likely to persist for some time and will continue to spur demand in the residential property market, pushing up prices beyond sustainable levels, the central bank said in the statement.

“The new rules aim to curb continued upward pressure on residential property prices, driven by low interest rates and rapid credit growth,” the island-state’s central bank said in the statement. “The eventual correction could be painful to borrowers and destabilize the economy.”

The three-month Singapore interbank offered rate, or Sibor, the benchmark used to price most home loans, is at an all-time low at just under 0.4 percent, compared with a peak 3.56 percent in 2006, according to data compiled by Bloomberg.

Over the past three years, the average tenure for new residential property loans has increased from 25 years to 29 years, the central bank said. More than 45 percent of new home loans had durations that exceeded 30 years, it said.

“We are already aligned with the new regulations on home loan tenures,” Sherry Leong, head of home financial services at Citibank Singapore Ltd., said. “Most of our customers take loan tenures of 30 years although we have granted loan tenures up to 35 years.”

Shoebox Apartments

In September, Singapore said it would cap the number of homes that can be developed in suburban projects to curb the increasing trend of what have been dubbed shoebox apartments, or apartments smaller than 50 square meters (538 square feet).

The island-state in December imposed an additional 10 percent stamp duty on foreigners and corporate entities. The extra levy is 3 percent for permanent residents purchasing a second home and for citizens buying their third residential property.

The government earlier imposed a 1 percent duty on the first S$180,000 ($147,000) of the property price, 2 percent on the next S$180,000 and 3 percent for the remainder.

Singapore home prices climbed to a record in the third quarter after developers sold more homes. The island-state’s private residential property price index rose 0.5 percent to 208 points in the three months ended Sept. 30, according to preliminary estimates released by the Urban Redevelopment Authority on Oct. 1. The index advanced 0.4 percent in the previous quarter, which was also at a record.

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