Could Property be Next?
It isn’t very often that the property market is led by developments and trends in the car market but after the Monetary Authority of Singapore eased the curbs on car loans there has been heightened speculation that they may do the same for property in the near future. Is that likely, and if it does go ahead, what are the likely consequences?
The restrictions on vehicle loans were put in place in 2013 in an attempt to reduce the demand for Certificate of Entitlements (COEs) and encourage financial prudence. Now, following a steady reduction in COE premiums, they have raised the maximum loan to value (LTV) threshold and extended the maximum loan tenure.
There have been, and according to analysts will be further, consequences to this easing, the main ones being a hike in demand, sales and prices. It is this that has fuelled rumours that the housing market could be in line to receive similar legislative changes. This is unlikely however, at least in the short term.
The government has on several occasions stated that property prices on the island are undergoing a controlled, modest decline. Prices are just under 10% down from their peak, but still in the region of 40% higher than they were at their lowest in 2009, so there is a long way to go yet before they are deemed to be an “accurate” representation of their value. Income growth has not increased anywhere near that level. With interest rates still being relatively low, any easing of restrictions will almost certainly see this price decline halted, and more than likely see a reversal of the trend, pushing prices back up to, and maybe above that peak level.
The restrictions, like those for the motor industry, were put in place in 2013, and took the form of a two pronged attack. First of all, the LTV was lowered for second homes (going from 60% to 50%) and for third homes (going from 60% to 40%). The total debt financing ratio (TDSR) structure was also put in place, restricting the total amount of debt home owners are able to take out in relation to their monthly income.
As stated, though it is unlikely that these will be eased anytime soon, there are always ongoing speculations claiming that it may not be too far away from being a reality. Two things will need to happen for that to be the case however. First of all, if everything continues as it is, and property prices continue to fall – say by a further 15%, then the government may well feel that the market is ready to have some assistance.
Alternatively, if there is seen to be a systemic risk to the economy – something that could be precipitated from numerous sources – then that too could spark an easing of the restrictions. The first of those could well happen in a year or two, whereas the second possibility is impossible to predict.
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