Under the proposed changes, the Monetary Authority of Singapore (MAS) will allow banks to finance up to 90 percent of the cost of purchasing private residential properties, up from the previous financing limit of 80 percent.

Half of the 10 percent required downpayment can be paid using funds from the Central Provident Fund, the state-run pension system, with the other half in cash, National Development Minister Mah Bow Tan told parliament.

This means prospective private property buyers need come up with just five percent in cash for a downpayment, from 10 percent previously.

Singapore will now also allow foreigners to purchase apartments in non-condominium developments of less than six levels without obtaining government approval.

Foreigners, however, will still need to get approval if they wish to buy separate houses in this land-scarce nation.

"Landed properties are a special class of residential property that Singaporeans aspire to own and should remain restricted," Mah said.

Anticipating a rise in lending, MAS, the city-state's central bank, said it would consider mortgage insurance as an alternative to higher capital levels required for higher-risk mortgage loans.

Mah said the policy changes were not intended to steer the property market in any direction.

"Some of the changes will have a positive effect on the market, while others may have a dampening effect. The overall impact may be positive or negative but that is not the purpose of our review," he said.

However the stock market reacted positively, with rises in property and banking stocks pushing the Straits Times Index up 1.99 percent to a five-and-a-half-year high of 2,292.92 points.

"It is a lift to the property sector... bank lending has been sluggish so this could provide them opportunities," GK Goh Securities regional economist Song Seng Wun said.

Joseph Tan, an analyst with property consultancy CB Richard Ellis, said the policy changes would open up the private residential property market to young couples and new families.

The vast majority of Singaporeans live in government-built apartment blocs, which are largely financed by the Central Provident Fund pension scheme.

Tan said the lifting of the restrictions on foreign ownership would also make Singapore "more attractive to foreigners looking to park their money in residential properties in a safe location within Southeast Asia".

Daiwa Institute of Research analyst David Lum said the policy changes "will boost property demand and help manage a steady appreciation of property prices".

SP Asian Equity Research analyst Winston Siay said the easing of home mortgage rules would boost loan demand.

In a statement, the MAS said the required 10 percent downpayment from home buyers would still be sufficient to deter over-borrowing and reduce potential losses for banks in case of default.

"To mitigate the increased risk that banks will take, MAS will require banks offering such loans to hold higher capital in line with its current capital adequacy rules," MAS said.

"MAS also expects banks to apply rigorous internal credit evaluation criteria before extending... loans."

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