No more IAS & IOL

In the past year especially, developers have been dangling these as carrots for property hunters - two schemes that got around the Government prohibition on deferred payment, first by allowing buyers to make interest-only payments on a mortgage loan for a period, and then by having developers absorb those initial interest payments until the project was completed.

The nett effect? Buyers forked out either much lower instalments in those first few years or even none at all. This was a situation that provided a fillip for "flippers" and investors, ironically after the Deferred Payment Scheme was scrapped in late 2007 to curb overactive speculation.

But the loopholes have now been closed.

With immediate effect, interest absorption schemes (IAS) and interest-only housing loans (IOL) are banned, as the Government yesterday took steps to curb excessive price swings in the property market.

A second change, which had been signalled for some time, involves the reinstatement of the confirmed list of the Government Land Sales programme in the first half of 2010.

Property-related assistance measures in the Government's Budget - such as allowing a one-year extension of project completion period and letting developers rent out unsold residential units for up to four years - will also not be extended after they expire within the next two years.

Said National Development Minister Mah Bow Tan, announcing these measures in Parliament: "It is in everyone's interest to have a steady property market where prices move stably in line with economic fundamentals. If excessive speculation develops and a property bubble forms, eventually a severe correction must take place. This will have serious consequences for the economy, for the property market and for property owners."

The ban on the two interest schemes does not impact recent projects on which developers have already offered the IAS; they can continue to do so. Also exempt are housing loans restructured to IOLs for borrowers in genuine hardship.

Those affected would be cash-poor home-hunters, especially those "who only have sufficient funds for the upfront downpayment of 20 per cent, (and) would now have to hold back on their buying decision for newly-launched projects", said Mr Li Hiaw Ho, CBRE Research's executive director.

They may, instead, have to look at projects close to completion because they would have to sell their existing home to finance the new purchase, he said.

For those serious buyers looking for a property for the long-term, analysts say that the steps are definite good news, taken as they were before a bubble started forming and speculation pushed prices up to "unnatural levels".