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Wednesday, May 21, 2014

Singapore

MAS sounds warning on foreign property risks

The Straits Times | Wednesday, May 21, 2014

The Monetary Authority of Singapore was the first central bank of a non-Muslim majority jurisdiction to come up with an ongoing local currency Islamic bonds issuance programme.

THE increasing number of Singaporeans buying property overseas has prompted a warning from the central bank about the risks.

The Monetary Authority of Singapore (MAS) said yesterday that its reminder is aimed at ensuring financial stability and prudence among Singaporeans.

It noted that Singaporeans poured $2 billion into foreign property last year based on deals done by real estate agencies here - 43 per cent up on the $1.4 billion invested in 2012.

MAS warned investors to take note of the risks before taking the plunge, including the challenges of dealing with an unfamiliar foreign market, particularly market conditions that can affect supply and demand. "Those who over-extend themselves will face increased vulnerability should prices decline sharply," it said.

It also cautioned that laws and regulations governing property purchases and loans in other countries can differ significantly from Singapore. While property developers here must maintain project accounts and adhere to strict progress payment rules, "there may not be similar safeguards in other countries", MAS noted, in response to media queries.

It also pointed to foreign exchange and interest rate risks.

Local banks said yesterday that they take steps to ensure borrowers remain financially prudent, while realtors said they make sure buyers are aware of the risks.

"In assessing customers' applications for overseas property loans, we take into consideration both the onshore and offshore loans that customers have in accordance to the TDSR framework," said Mr Joseph Wong, head of consumer credit risk management at OCBC Bank.

TDSR, or total debt servicing ratio, was imposed in June last year and caps the amount of debt a borrower can take on. However, MAS acknowledged that the TDSR rules "cannot prevent those who take loans from lenders outside Singapore or use their own savings to finance overseas property purchases from over-extending themselves".

Malaysia and Australia are the most popular markets for local buyers, said consultants yesterday, although others such as London and Japan are gaining ground.

"Malaysia was one of the hottest due to its proximity, and also because the culture there is not too different from here," said Chris International director Chris Koh.

ECG Holdings chief executive Eric Cheng said interest in real estate in Japan has grown, partly owing to Tokyo's successful bid to host the 2020 Olympic Games.

He added that he warns prospective buyers not to overstretch themselves and to do their homework before signing on the dotted line for an overseas property.

melissat@sph.com.sg


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