New lending rules 'could reduce home sales'

Analysts say investors may opt for foreign property and smaller homes

THE Government's latest move to tighten borrowing rules for property buyers could reduce sales here and push more investors to foreign property and smaller homes.

Analysts also said the policy shift might reflect a steeper rise in home prices in the second quarter than the first. Second-quarter flash estimates on home prices will be out on Monday.

The Monetary Authority of Singapore (MAS) said yesterday that banks have to use a standardised set of guidelines to assess property buyers' ability to borrow. This total debt servicing ratio (TDSR) framework applies to all property loans to individuals, the MAS said. It takes effect today.

"We think the TDSR framework is first and foremost, a measure aimed at ensuring financial stability, rather than at directly cooling property prices - although there will certainly be an impact," Barclays economist Joey Chew said yesterday.

"Investors who were intending to enter the property market now to lock in a low rate of interest may be thwarted, particularly if they are already highly leveraged," she added.

HSR special adviser Donald Han said the impact of the MAS move would be most felt by those buying their second or subsequent properties, and home buyers may turn to smaller homes with cheaper overall prices.

"There will be a slowdown in demand... But it's like trying to stop the tide. The money will have to go somewhere," he told The Straits Times.

Mr Han reckons that sales volumes could drop by 10 per cent to 20 per cent over next month and August, but residential prices are unlikely to be hit. "Developers have strong enough balance sheets to hold their stock for longer than that," he said.

Property investor Michelle Ang, 37, a corporate treasurer in a multinational corporation, told The Straits Times yesterday that she may now look overseas for future property investments.

Mr Han also said it would become more tedious for banks to evaluate mortgages as they would have to exchange information with each other to get the full picture of a property buyer's borrowing capacity.

A DBS Bank spokesman said yesterday that the bank "has a robust mortgage framework in place and key considerations for approving mortgage loans include the customer's existing financial commitments as well as their ability to make repayments".

OCBC head of group corporate communications Koh Ching Ching said: "This set of new guidelines on the debt servicing ratio of a home loan is significant. With the implementation taking place tomorrow, we are reviewing our processes to ensure that we comply with it."

The Straits Times understands United Overseas Bank is using a framework that already closely follows the one laid out by MAS.

In response to the MAS announcement, the Urban Redevelopment Authority (URA) said it was extending the tender period for a residential site at Tampines Avenue 10 (Parcel B). The tender was supposed to close on July 2 but will now close on July 16. The extension will give developers more time to account for the new MAS rules when submitting bids, said a URA statement yesterday.