Singapore tightens home loan rules amid bubble fears

October 5, 2012
A man carrying a metal rail/AFP

, SINGAPORE, Oct 5 – Singapore’s central bank on Friday tightened rules on residential property lending amid fears that the city-state’s real estate market could be heading into a dangerous bubble.

The Monetary Authority of Singapore (MAS) said in a statement it was imposing a maximum tenure of 35 years for new housing loans with effect from Saturday.

“MAS’ move is part of the government’s broader aim of avoiding a price bubble and fostering long-term stability in the property market,” the central bank said.

“The maximum tenure of all new residential property loans will be capped at 35 years. In addition, loans exceeding 30 years tenure will face significantly tighter loan-to-value limits.”

Song Seng Wun, a regional economist with CIMB Research, told AFP the move was likely prompted by “fears of a property bubble”.

He said the market has been red-hot due to low interest rates and easy access to credit.

Last month, media reports said one government-built high rise apartment was sold at a new record price of more than one million Singapore dollars.

Finance Minister and MAS chairman Tharman Shanmugaratnam warned the low interest rate and easy credit regime could change.

A rise in interest rates could leave borrowers hard up in repaying their loans and when property prices fall banks are left holding the bad loans — a situation that could shake the financial system.

“We are taking this step now to require more prudent lending and will continue to watch the property market carefully,” Shanmugaratnam said.

“We will do what it takes to cool the market and avoid a bubble that will eventually hurt borrowers and destabilise our financial system.”

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