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New Measures By Government To Check Property Market
September 2009 | Real Estate | Property Notes
In the face of private home sales with a sustained price rally in recent months, the government has announced measures to restore stability and sustainability to the residential property market that is booming amid a recession and to pre-empt any speculative bubble from forming. The measures were outlined in Parliament on 14 September 2009, National Development Minister Mah Bow Tan.
These measures include:-
| (1) | the immediate withdrawal of the Interest Absorption Scheme (the "IAS") and Interest-Only Loans (the "IOL") offered for purchases of uncompleted property developments; |
| (2) | the non-extension of the property-related assistance measures outlined under the January 2009 Budget when the measures expire; and |
| (3) | the resumption of land sales through the Government's confirmed list. |
Withdrawal of IAS and IOL
(1) How the IAS and IOL work
Both the IAS to IOL allowed buyers to defer paying the bulk of their purchase price until the Temporary Occupation Permit ("TOP") for the unit has been issued.
The IAS is a housing loan payment scheme offered by a housing developer and his partner bank(s) to purchasers of uncompleted housing units. Prior to the issuance of TOP of the unit, the purchaser only has to pay the upfront down-payment. The bank will require only interest payments to be made on the loan which will be borne by the developer with the purchaser starting to make regular instalment payments on the loan only after TOP.
The IOL is a housing loan arrangement between the bank and the purchaser only, whereby the purchaser is allowed to make only interest payments on the loan for a period of time, with no payment of the loan principal.
As both arrangements entirely eliminate or substantially lower regular instalment payments of the principal towards the loan for the first few years before TOP is issued and may invites speculators who try to sell it off for a profit before the commencement of the payment of the instalment payment of the principal.
(2) The new measure
With effect from 14 September 2009, the Monetary Authority of Singapore ("MAS") will disallow the IAS and IOL. This measure applies to all private residential projects. However, the developer can continue to offer the IAS if the developer and its partner bank(s) have entered into an agreement before 14 September 2009 to offer IAS for a project, and where the developer or its agent has already invited any person to purchase the units in the project (regardless of whether the sale of the project is in phases).
It is important for the developer to check with the partner bank(s) that they had submitted to MAS the list which shall include the project(s) under which IAS had been offered by the developer before 14 September 2009 and ascertain with them that they can continue to offer the IAS for the project(s).
It should be noted that even if the developer had written to the Controller of Housing regarding the offer of the IAS and the Controller had indicated that he has no objection to the same, the developer would not be allowed to offer the IAS if it had not offered units in the private residential project for sale under the IAS before 14 September 2009.
With the immediate withdrawal of both IAS and IOL, all homebuyers will now have to use the normal progressive payment plan, which means making regular payments on mortgages once they have bought their property.
Non-extension of assistance measures under January 2009 Budget
The Government had introduced in January's Budget measures aimed at aiding developers in view of the dramatic fall in demand and uncertainty in the economic outlook then. These measures allow developers greater flexibility to adjust supply in response to a property market downturn. With current firmer property market conditions, the following measures will not be extended when they expire:-
| (1) | allowing one-year extension of project completion period (from the usual 6 years); |
| (2) | allowing re-assignment of Government Land Sale sites and private land owned by foreign developers; |
| (3) | giving developers up to four years from date of issue of TOP to dispose of all private residential units in the development (from the requirement of the disposition within 2 years from the date of the issue of the TOP); |
| (4) | allowing developers to rent out unsold private residential units for a maximum of four years from date of issue of TOP or from the date of the application (if TOP had already been obtained by the time of application); and |
| (5) | allowing up to 2 years (from 22 January 2009 or the date of Provisional Permission ("PP") / Written Permission ("WP"), whichever is the later) for deferment of property tax for land sites under development with a valid PP or WP. |
Resumption of land sales via confirmed list
The Government has also announced that they will be resuming land sales in 2010 to meet developers' demand for new sites and to further moderate the rising property prices by re-introducing the confirmed list of sites that will be put up for sale according to a pre-determined schedule, regardless of developers' interest. This system was halted in October 2008 with the property market downturn and it has since been selling sites through the reserve list where land is put up for sale only when a developer submits a bid.
MAS Notice 632 (Amendment) 2009 (for Banks) and MAS Notice 1106 (Amendment) 2009 (for Merchant Banks)
| (1) | In IOL (Para 2(a)(a)(i)(2)) there is no qualification that the residential property must be under construction; unlike Para 2(a)(a)(i)(3) for IAS where is it implied that it is for property under construction. |
| (2) | The prohibition against IOL does not apply to loans where the Option was granted or Sales Contract entered into before 14 September 2009. The other exception to IOL is found in Para 2(c)(b), where it will not apply in the case of restructuring due to financial position of the Borrowers. |
| (3) | Under Para 2(b)(b)(i), the banks are required to obtain a written declaration from the Borrower on the benefits from the Developers or other parties (such as discount, rebate, payment of stamp and legal fees), whether any interest is payable by the developers or other parties for the benefit of the borrower and if the credit facilities was for the purchase of the residential property. |
| (4) | The statement made in the Notice (under Para 2(d)(ii)) clarifies the doubt in the Measure as to the meaning of "offer for sale". The paragraph states that the restriction under IAS will not apply if the Developer "has invited any person including any person associated in any manner with the vendor, any person selected by the vendor or its agent or any members of the public to the purchase of the property". This provides the basis that it would be sufficient where the developer or its agent has already invited any person to purchase the units in the project and that there need not be a concluded sale. |
