ST : Firms will have to fork out bigger cash proportion

14 JAN 2011
new property curbs

Firms will have to fork out bigger cash proportion

By Cheryl Lim

ONE small group of property buyers will have to fork out a higher proportion of cash upfront than all other buyers as a result of the latest round of property market cooling measures.

Buyers who are not individuals - that includes companies, trusts and collective investment schemes - can borrow just 50 per cent of the property's value.

They are being forced to put half of the property's value on the table in cash after the loan-to-value ratio has been slashed for them.

The loan-to-value ratio represents the size of a loan as a percentage of a property's worth.

This group accounts for a small but growing portion of property deals as these investors look to property as a way to protect themselves against the impact of rising levels of inflation.

This new limit comes into effect today and will also apply to joint property deals by an individual and purchaser who is not an individual.

In February last year, the limit for all housing loans provided by financial institutions was lowered to 80 per cent.

That was cut even further to 70 per cent for all housing loans in the last round of property measures last August.

Observers said that the number of purchases by non-individuals is small. But property consultancy Propnex's chief executive Mohamed Ismail said he believes this latest measure has been introduced to prevent individuals from circumventing the earlier rules by incorporating companies to buy property.

Mr Png Poh Soon, head of research and consultancy at Knight Frank, said non-individual buyers do not make up a significant portion of all property buyers.

'We do see companies and institutions coming in from overseas to buy property in bulk, but in terms of percentage purchased, it is not significant,' said Mr Png.

He added investors prefer putting their money in Singapore because it is more stable and secure.

Urban Redevelopment Authority Realis data obtained by property consultancy Cushman & Wakefield shows this group of buyers made up 2.8 per cent of total private residential transactions in the first quarter of last year.

In the second quarter, this figure was 2.6, increasing to 4.2 per cent in the third quarter and then to 6.2 per cent in the last quarter.

Knight Frank's Mr Png added that these buyers mostly look to buy commercial and office property but they may also turn their eye to the residential sector. He pointed out the latest measures might not deter these buyers, because some may be able to hold off selling the property for a longer period.

'(These measures) are to make sure they think twice before buying and to encourage more long-term investors rather than short-term speculators,' he said.