In real terms, this corresponds to growth rates of 4-5%, which is relatively high by historic standards. Differences across euro area countries have been considerable: while in Spain, France, Ireland and Italy, residential property prices were rising on an annual basis by between 11% and 17% in 2002 and 2003, they have been falling slightly in Germany and Austria in the last four years. The dynamism of property prices in several euro area countries is very much related to the very low levels of interest rates brought about by the introduction of the euro. For several euro area countries, the adoption of the euro marked a significant fall in real interest rates, as it implied a “regime change” towards a more stable macroeconomic environment. The fall in interest rates, in turn, allowed households to borrow more and accumulate more debt. As a consequence, household indebtedness in the euro area has increased significantly in recent years. In 2004 it is estimated at 54% of GDP, up from 46.5% in 1998 and 43% in 1995. The rise in household debt has not, however, been accompanied by higher interest payments as a ratio of disposable income in the euro area as a whole. This ratio amounted to 4.6% in 2003, similar to the 4.8% observed in 1998. However, the strong rise in house prices and the substantial increase in household indebtedness have raised some concerns. Given the differentiated path of house price increases across countries, this concern is obviously more relevant and stronger in some countries than in others.
36 Dealing with the magnitude of financial cycles or bubble dynamics that economies typically face from time to time requires some absolute prudential limits. In Singapore, we have employed the following limits on property loans: •  Loan tenure cap of 35 years. BIS central bankers’ speeches  5  •  Loan-to-value ratios of 80%, 50%, and 40% for the first, second, and third property loans respectively, for tenures less than 30 years; for loan tenures more than 30 years, the loan-to-value ratios are 60%, 30%, and 20%. •  Total debt-service ratio of 60%, taking into account all debt obligations and using a medium-term interest rate of 3.5% for residential properties. (Current mortgage rates are generally below 2%.) •  Cap on banks’ property-related exposures at 35% of their total exposures. 37 In fact, macroprudential policies need not even be limited to prudential tools at the disposal of central banks or financial regulators. In the face of abundant global liquidity, credit-based prudential measures may not constrain loan growth or asset price increases sufficiently. Singapore has therefore also adopted fiscal measures such as stamp duties on buyers and sellers of properties as part of the macroprudential toolkit. •  The seller’s stamp duty ranges from 4% to 16%, while the buyer’s stamp duty ranges from 3% to 18%. •  These are essentially transactions taxes that aim to curb the speculative flipping of properties. 38 Third, it is important to draw a distinction between macroprudential policies and capital flow management measures.