Property curbs slow lending but sector still a concern

The property curbs over the past few years have slowed home lending and are squeezing speculators out of the market, the central bank said yesterday.

But it warned that prices remain high, mortgage debt is still rising and some households could be hit if interest rates rise.

Home loans grew 12 per cent in September from the same month last year, down from a peak of 22 per cent growth in September 2010, the Monetary Authority of Singapore (MAS) said in its Financial Stability Review 2013 report.

The volume of new home loans in the third quarter was $8.8 billion, well under the $13.5 billion recorded in the same three-month period last year, reflecting lower overall demand.

The average tenure of new mortgages has also shortened, from a record 30 years in the third quarter of last year to about 24 years now.

Another sign that the property curbs have taken their toll is a drop in demand from investors and speculators: Borrowers who took up a second or subsequent housing loan comprised 14 per cent of the new loans market in the third quarter, down from about 30 per cent in 2011.

But MAS said price levels remain high, and household sector debt has been on a rising trend.

"More sluggish economic growth, less favourable labour market conditions and less bullish sentiment could lead to a turn in the property cycle, possibly at the same time that interest rates rise.

"Such a scenario could lead to a concurrent erosion of household net wealth and higher debt- servicing burdens. Over-leveraged households would be more vulnerable to such shocks," MAS said.

It noted that mortgages account for about three-quarters of household debt.

But some home buyers said they were not too worried about a rise in interest rates as they had done their homework before taking the plunge.

Mr Donny Tan, 42, who bought a $1.14 million two-bedder at Alex Residences in Redhill last month, said he still had some buffer capital.

He added that if the property could not be rented out, he and his wife would sell their three- bedroom Housing Board flat in Commonwealth and move into the Redhill home.

Businessman Noel Chia, in his 30s, bought a two-bedder at Sant Ritz in Potong Pasir for $1.1 million in April while also factoring in higher rates. "I already thought of the worst-case scenario before committing, of interest rates rising to maybe about 7 per cent."

"Investors need to exercise caution when dealing with high-yield debt and other new investment products. Policymakers need to stay vigilant and be prepared to take measures to manage risks that may emerge."

It is good advice for Asia too. To the extent that financial imbalances will always exist, policymakers here will also need to put in place structures that protect their economies from the caprices of capital flows, and prevent a dangerous accumulation of risk.

The irony is that the more stable a country's financial system and economic growth, the more likely it is to attract hot money. The trick is to learn how to better manage it as well.

PROPERTY LAUNCHES & INVESTMENTS

Property Launches & Investments

Property curbs slow lending but sector still a concern

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