June 29 (Bloomberg) -- Singapore unveiled new rules governing how financial institutions grant property loans to individuals, extending efforts to curb speculation as prices in Asia’s second-most expensive housing market continue to rise.
Starting today, a new framework requires that lenders take a borrower’s debt into consideration when granting property loans, the Monetary Authority of Singapore said in a statement yesterday. Home loans should not exceed a total debt servicing ratio of 60 percent and those that do will be considered “imprudent,” it said.
In January, the government unveiled a seventh round of measures in about four years that included an increase in stamp duties for home buyers by 5 percentage points to 7 percentage points. While private residential property prices rose to a record in the three months through March, the gain was the slowest in three quarters after the government’s January curbs.
“It may not appear as draconian as the seventh round but when it’s applied together with the existing property market curbs, the effects can be very potent,” said Nicholas Mak, executive director at SLP International Property Consultants. “It’s going to be like a slow-acting medicine” in helping cool the market, he said.
The MAS said it will also refine how existing loan-to-value rules are applied to ensure limits put in place to cool investment demand in the housing market are effective. These rules are aimed at preventing borrowers from circumventing tighter limits on second and subsequent housing loans.
The total debt servicing ratio level of 60 percent will be reviewed over time, the central bank said.
Lenders will also be required to deduct at least 30 percent from all variable sources of earnings, such as bonuses, and rental revenue when determining an applicant’s income streams, the regulator said.
When calculating a borrower’s ability to repay using the total debt servicing ratio, banks will have to apply the prevailing market rate or 3.5 percent for housing loans and 4.5 percent on non-residential property loans, whichever is higher.
The regulator inspected banks’ residential property loan portfolios in 2012 and found they “generally had in place sound policies to assess the credit worthiness of borrowers,” it said in the statement. “The inspection and subsequent surveys revealed uneven practices with respect to the application of debt servicing ratios and highlighted areas for improvement in credit underwriting practices.”
The island-state’s private residential property price index rose 0.6 percent to a record 213.2 in the three months ended March 31, according to the latest data issued in April by the Urban Redevelopment Authority.
Singapore is Asia’s most-expensive housing market behind Hong Kong, according to a Knight Frank LLP and Citi Private Bank report released last year that compared 63 locations globally.
Hong Kong has also extended anti-speculation measures as low interest rates and capital inflows drove up demand, making housing unaffordable.
Singapore has since 2009 imposed measures to cool the property market, which has been fueled by increasing wealth.
High-net-worth individuals with at least $1 million in investable assets in the Asia-Pacific region increased 9.4 percent to 3.68 million last year, boosted by Singapore and Hong Kong, according to the 17th annual World Wealth Report released by Cap Gemini SA and Royal Bank of Canada last week.
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