Singapore tightens home loan limits as rates rise

SINGAPORE, Sept 30 (Reuters) – Singapore has unveiled a package of measures for the property market, including tighter lending limits for home loans in response to an interest rate hike, as well as new measures to moderate Requirement.

The move would ensure “cautious borrowing” and “avoid future difficulties” in servicing home loans, Singapore’s central bank, Ministry of National Development and Housing and Development Board said in a joint statement on Thursday evening.

The measures – including reducing by 5 percentage points the amount of public loans available to buy social housing – were announced on Thursday evening and took effect on Friday.

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The interest rate floor used in calculating bank loans has also been raised, reducing the amount of loan a person can get relative to their income level when buying in the public or private real estate market.

OCBC economist Selena Ling said the measures should “tame down any exuberance and slow the pace of price appreciation.”

The measures would have less impact on foreign investors because they are more attentive to the global interest rate situation or less reliant on loans, Ling said.

The new measures primarily target the “overheated” public housing market, said Christine Sun, senior vice president of research and analytics at OrangeTee & Tie.

Analysts expect the measures to slow house price growth in the fourth quarter.

Reuters previously reported that a record number of public apartments in Singapore had sold for more than S$1 million ($697,739).

The government implemented a sweeping package of cooling measures last December but there was still ‘clear upward momentum’ in public housing prices which have risen more than 5% since then until the end of the second quarter of this year, authorities said in the statement.

Meanwhile, private home prices also rose 3.5% in the second quarter, five times the 0.7% rise in the previous quarter.

Higher apartment prices in Singapore, where real estate is seen as a safe-haven investment, have been exacerbated by COVID-19-related construction delays, creating a shortage of new units.

Authorities said in Thursday’s statement that interest rates had risen significantly and were expected to rise further.

“We urge households to exercise caution before taking on new borrowing and to ensure their ability to repay debt before making long-term financial commitments.”

Share prices of major developers in Singapore like City Developments (CTDM.SI), GuocoLand (GUOC.SI) and Frasers Property (FRPL.SI), fell more than 1.5% on Friday following the new measures, against a down 0.4% in the broader market.

Many central banks around the world have raised interest rates to fight inflation. In Singapore, bank mortgage interest rates are determined by commercial banks. Three local banks have in recent weeks temporarily canceled fixed-rate mortgages.

Singapore’s monthly inflation rate has remained elevated in recent months, and economists generally expect the central bank to tighten policy in its scheduled review next month.

($1 = 1.4332 Singapore dollars)

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Reporting by Shubham Kalia in Bengaluru, and Chen Lin and Xinghui Kok in Singapore, additional reporting by Tom Westbrook; Editing by Leslie Adler, Christopher Cushing, Ed Davies

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