The Monetary Authority of Singapore (MAS) released its annual Financial Stability Review on November 23, 2018. The review reveals a recurrent 3 percent rise in household debt every third quarter of the year. MAS attributes this spike in debts to a 3.4 percent rise in housing loans noticed in the third quarter of every year in the recent past.
Given the consistency of this trend of increase in household debts, MAS advices prospective real estate buyers to be cautious of the market rates of interest on housing loans when attempting to fund their purchases. MAS adds that the rise in household debt is consistent with the growth in income rates and is indicative of healthy balance sheets of Singapore’s household market supply.
The review released by MAS show Singapore’s household balance sheets to have maintained an equilibrium in the recent past. There is a noted excess of liquid assets over total household liabilities. MAS considers this as instrumental in providing household investors with strong financial buffers, which in turn have been beneficial to the market by and large.
However, MAS also notes that cooling measures, like the ones implemented by the Government in the recent past, are required to remain in place for the long-term stability of the property sector in Singapore.
The Government had, for instance, raised the Additional Buyer’s Stamp Duty (ABSD) rates in July 2018. Permanent residents and citizens of Singapore now have to pay more in stamp duties if they are already property owners and are investing in successive properties. The ABSD rate for investors who fall in this category of buyers was raised by 5 percentage points.
In addition, several limits have been put in place for borrowing loans for home buyers. The loan-to-value limit, or the proportion of a property’s value on the basis of which the amount a buyer can borrow is determined, was brought down by 5 percentage points. This made loan-to-value limits more stringent in application. Home buyers are now able to avail of fewer loans for their potential or existing investments in comparison to the past.
The MAS review looks at these changes brought in by the Government with a favorable eye. Measures like these have acted as buffers and slowed down the rate at which property prices and land sale activities were rising. Given the number of housing projects already in the pipeline, Singapore runs the risk of facing a highly destabilized market in the near future if the rapidly escalating prices are not kept in check, notes the review.
The central bank too recently released a report over market surveys done until July of this year. This report likewise noted that the value of new housing loans has been growing by thirty percent each year. This has been complemented by a rise in the demand for residential properties.
MAS advises potential investors in the property market to keep an eye out for the supply of new launch condo units, especially ones which are available in the medium term. Buyers need to remain vigilant of the possible impact of rising interest rates on their investments as well. The current trend projects a weak rental yield. As such, buyers should take into account all ancillary factors that may add to their overall household debts.
The review by MAS also asks potential buyers to be wary of over-leveraged households as these are most likely to get adversely affected if property prices face a sharp correction in the near future.
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