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Policy changes affecting the property market




Highlights of Changes


increase the housing financing limit to 90% of the property value


lower the cash payment for private residential properties from 10% to 5%


allow CPF members to use their CPF savings to purchase private residential properties with remaining leases of 30 to 60 years


allow non-related singles to use their CPF savings to jointly purchase private residential properties


phase out the Non-Residential Properties Scheme (NRPS) by 1 Jul 2006


allow foreigners to purchase apartments in non-condominium developments of less than 6 levels without the need to obtain prior approval

I will now proceed to elaborate on the measures that will be put in place in the next few months.
Details of these policy measures will be provided by the respective Government agencies separately.
Raise LTV limit for housing loans from 80% to 90%
The first of these measures is the raising of the Loan-to-Value (LTV) limit for housing loans. MAS introduced the 80% LTV limit for bank-originated housing loans in 1996, together with the Government¡¯s package of measures to cool the private property market.
The 80% LTV limit was intended not only to counter the market overheating at the time, but to ensure sound bank lending practices across property market cycles.
The 20% payment by borrowers provided a buffer for banks in the event of a property downturn. This was particularly important as bank loans at the time ranked second behind borrowers¡¯ own CPF claims on mortgaged properties.
In 2002, the priority of claims over properties was changed so that banks now held the first charge for the property ahead of CPF. It has been three years since, and the market has had sufficient time to adjust to this change.
Currently, over two-thirds of banks¡¯ outstanding housing loans are secured by first claims over properties.
MAS is now ready to increase the housing financing limit to 90% of the property value. The remaining 10% which the purchaser has to pay will continue to deter over-borrowing by purchasers and minimize potential losses by banks arising from borrower default.
However, to mitigate the increased risk that banks will take, MAS will require banks to hold more capital against housing loans which exceed 80% of the property value. MAS will also expect banks to apply rigorous internal credit evaluation criteria before extending high LTV loans.
In some countries, mortgage insurance is available to insure lenders against the risks of high LTV loans.
MAS is prepared in-principle to consider mortgage insurance as an alternative to the capital charge to mitigate the risks of high LTV loans. However, mortgage insurance is not yet available in Singapore. MAS will be studying its viability here and how best to regulate mortgage insurers.
HDB will similarly raise the loan limit for its flat buyers from 80% to 90%. The actual loans to be granted will be subject to the banks¡¯ and HDB¡¯s credit assessment and mortgage financing policies.
Limit minimum cash payment required for residential properties at 5%
Another revision to the housing loan rules in 2002 was the reduction of the cash payment for private residential properties to 10% of its value, down from 20% previously.
The Government will now lower the cash payment for private residential properties from 10% to 5%. This means that a purchaser who is granted a 90% loan for his housing unit can pay his remaining 10% through a combination of at least 5% of the property value in cash, and the remaining with CPF.
For HDB flats financed with bank loans, the payment to be paid in cash is currently 4% and is slated to increase gradually to 10% in 2008.
In line with the reduction in the cash payment for private residential properties to 5%, the Government will adjust the cash requirement for HDB flats financed with bank loans to 5%, instead of to 10% as initially planned.
The raising of the LTV limit will take immediate effect and apply to all properties purchased from today. The 5% cash requirement for private properties will take immediate effect, while that for HDB flats will apply to flats purchased from 1 Jan 2006.
These changes will give consumers a wider choice of financing options when purchasing a property. However, I urge property buyers to continue to exercise prudence in their home purchase and financing decisions, and ensure that they can comfortably afford the expenses.

Source: Media Release 19 Jul 2005

Full Text of Speech


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19 July 2005