MAS' property loans tenure cap unlikely to hurt demand much

The mortgage to income ratio remains comfortable at 27-29%.

According to CIMB, the Monetary Authority of Singapore (MAS) announced on Friday that it would be capping the tenure of residential property loans granted by financial institutions at 35 years. For loans exceeding 30 years or with loan periods beyond the retirement age of 65 years, tighter loan-to-value (LTV) ratios would apply.

Here's more from CIMB:

For these loans, the LTV limit will be: 1) 40% for a borrower with one or more outstanding residential property loans (down from 60%); and 2) 60% for a borrower with no outstanding residential property loans (down from 80%).

In addition, the MAS will lower the LTV ratio for residential property loans to non-individual borrowers from 50% to 40%. The new rules will apply to both private properties and HDB flats from 6 Oct.

We had expected new property measures in light of QE3. Other regional governments such as China and HK have already made their moves. We believe this move is preemptive in nature and alone is unlikely to hurt demand much. There have been recent cases of banks dishing out loans for longer than 35 years.

MAS estimates that more than 45% of new residential property loans exceed 30 years, with average tenures up from 25 years to 29 years in the past three years.

Given low mortgage rates (1-1.5%) and the demand for smaller units, we estimate that the mortgage to income ratio remains comfortable at 27-29% even if loan tenures are capped at 30 years. Of greater significance is the policy makers’ intention to intervene if physical prices remain elevated.