Singapore tightens housing loan limits as rates climb

SINGAPORE is taking steps to tighten housing loan limits after a jump in borrowing costs, a move that may cool the nation’s buoyant property market.

The city-state will raise the interest rate floor used to calculate the total debt servicing ratio and mortgage servicing ratio by half a percentage point for property purchased from Friday, according to a statement by the Monetary Authority of Singapore, the Ministry of National Development and the Housing & Development Board.

“The revised medium-term rate floors ensure that households borrow prudently for their property purchases in a higher interest rate environment,” the MAS said. Authorities also took steps to dampen the public housing market, including a 15-month waiting period for some buyers of resold units.

Singapore has largely defied a global property downturn, as buyers brush aside concerns about rising interest rates that have impacted markets from Canada to New Zealand. Home prices in the island-state jumped 3.5% in the second quarter, following a brief slowdown in the wake of curbs introduced at the end of 2021.

“We expect the latest cooling measures to slow home price growth in the fourth quarter — especially as mortgage rates continue to rise,” Morgan Stanley analysts including Wilson Ng wrote in a note.

Shares of Singapore property developers declined on Friday. City Developments Ltd. dropped as much as 2.5%, and Wing Tai Holdings Ltd. slid 3.3%.

Banks and other lenders will continue to determine the actual interest rate charged, according to the statement. When granting loans, financial institutions need to ensure total debt and mortgage repayments don’t exceed a proportion of the borrower’s income and the latest change imposes a higher interest rate when making those calculations.

Borrowing costs in Singapore have surged alongside global interest rates, as the Federal Reserve and other central banks take aggressive steps to contain soaring inflation. The three-month compound average Singapore overnight rate — used by banks to set interest rates for mortgages — has jumped to almost 2% from 0.2% at the start of the year.

“Market interest rates have risen significantly,” MAS said in the statement. “They are likely to increase further in future.”

For public housing, the government will introduce an interest rate floor to calculate eligible loans, and lower the loan-to-value limit for HDB loans to 80%, from 85% previously.

Authorities will also introduce a temporary measure to cool demand by requiring private home owners and those who sold their private properties to wait 15 months before purchasing resale public housing units. The new rule won’t apply to those older than 55.

“The current round of cooling measures will have more impact on the public housing market,” said Christine Sun, senior vice president of research and analytics at OrangeTee & Tie. The waiting period may slow price increases for larger apartments “to a certain extent,” she said. – BLOOMBERG