Singapore is Deleveraging Real Estate

Singapore just passed on Friday the most interesting deleveraging Act targeting the housing market of any country in history. In a move that took the world by surprise, the Government of Singapore has introduced new measures as of Friday designed to deleverage  the property market and stop home buyers from over-extending themselves to temper and control a real estate bubble.

The Monetary Authority of Singapore (MAS) will now restrict all home loans to a maximum of 35 years. Home buyers who take a loan that lasts more than 30 years, or extends past their retirement age of 65, will now have to pay out significantly more in cash curtailing the leverage available by lending. The long-term loans can now only be up to 60 per cent of the property’s value if this is the buyer’s first mortgage. This will result in requiring the borrower must pay 40 per cent of the price upfront, in cash. This is in response to the influx of foreign investors that has been seen locally as fueling inflation. The number of working permits for foreigners is being reduced by 2/3rds. The government has CORRECTLY distinguished “currency inflation” that is driven by foreign capital inflows irrespective of domestic policy objectives.

The new rules are:

  • All residential property loans capped at a tenure of 35 years.
  • Tighter limits for home loans longer than 30 years or which extend past age 65.

If the borrower has no other home loan, he can now borrow only 60 per cent of the property’s value (down from 80 per cent).

If the borrower has other existing home loans, he can borrow only 40 per cent (down     from 60 per cent).

  • Same rules apply for refinancing loans.
  • Non-individual borrowers now subject to 40 per cent loan limit (down from 50 per cent).
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