By Fiona Chan & Gabriel Chen

THE removal of schemes that allowed home buyers to defer mortgage payments until the property has been fully built is likely to have the most direct impact on property speculation, say consultants and analysts.

Interest absorption and interest-only loans - both of which remove or reduce regular instalment payments for uncompleted properties - have been axed with immediate effect.

The step was announced in Parliament yesterday by National Development Minister Mah Bow Tan and is part of a package of measures aimed at restoring stability to a property market that is booming amid a recessionary environment.

Property consultants said the withdrawal of these two loan types will have the biggest effect on housing demand.

'Removing the interest absorption scheme (IAS) will definitely affect sentiment and consequently demand and home sales,' said Ms Grace Ng, deputy managing director of property consultancy Colliers International.

But she added that the adverse effect is likely to be limited. 'There are many other factors fuelling the property market jump: Low interest rates, a lot of liquidity, the stock market boom, and attractive property prices.'

Industry watchers and bankers agreed. They say fewer people have been opting for interest absorption loans in recent months, because homes bought with these loans are usually more expensive.

'It is unlikely that these measures will significantly depress property prices because under the interest absorption scheme, prices are marginally higher by about 2 per cent to 3 per cent,' said Mr Chia Siew Cheng, head of the loans division at United Overseas Bank (UOB).

OCBC Bank's head of consumer secured lending, Mr Gregory Chan, expects a 'knee-jerk response from potential home buyers', resulting in a slowdown in the number of new transactions in the short term.

But whether sales will be curtailed for good 'depends on other macro factors such as property supply and demand, economic recovery and developers' pricing'.

Speculators, the group that the Government is hoping to weed out from the market, are most likely to be hit by the withdrawal of such schemes.

'Most genuine buyers take up the normal progressive payment scheme,' said Kim Eng property analyst Wilson Liew. 'Those who would be affected by the move are speculators and some of the younger couples who are waiting to accumulate more wealth between the time they buy their unit and its completion.'

The move will benefit genuine buyers and investors, who can now make their purchases without 'excessive speculation pushing up prices to unnatural levels', said CB Richard Ellis Research executive director Li Hiaw Ho.

IAS gained favour after the popular deferred payment option was scrapped in October 2007. In recent launches, they have been taken up by about a quarter of buyers.

Most banks in Singapore have tied up with property developers to offer interest absorption loans, including DBS Bank, UOB, HSBC and Maybank. Banks offering interest-only loans include DBS, UOB, HSBC, Standard Chartered and Maybank.

'Purchasing a property and taking up a housing loan are long-term financial commitments,' said Mr Mah in Parliament yesterday. The removal of the interest absorption and interest-only loans 'will encourage prospective home buyers to consider carefully their ability to afford the properties over the long term and not rush into any purchases'.

This article was first published in The Straits Times.