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TDSR: the game changer

Prices expected to moderate, but severe corrections not likely: analysts

[SINGAPORE] In a year peppered with property measures, it was a financial measure for ensuring fiscal prudence that has stood out as a game changer, with a resulting overhang that is expected to continue into 2014.

Implemented in late June, the total debt servicing ratio (TDSR) framework introduced by the Monetary Authority of Singapore (MAS) applied to all property loans granted by financial institutions to individuals.

Under this framework, all property loans must stay within 60 per cent of all monthly debt obligations to monthly gross income. Financial institutions must consider all outstanding debt obligations - such as property loans, car payments and credit card loans - in computing the TDSR, which also fixes interest rates at the higher of either the prevailing market interest rate or a specified medium term rate.

"The restrictions on prospective homebuyers to secure more loans have greatly affected the buying momentum of residential properties," said Alice Tan, head of research at Knight Frank Singapore.

In July, just over a month after the TDSR was introduced, private home sales took a drubbing. Excluding executive condominiums (ECs), developers moved 481 private homes in July, less than a third of the 1,806 units in June. The number of homes launched also fell to 557, from 1,768 units in June.

Market watchers said part of the reason for July's abysmal numbers must also be attributed to the cumulative effects from the seventh round of cooling measures since 2009 put in place in January.

Then, the government rolled out a slew of measures such as steeper additional buyer's stamp duty (ABSD) rates, lower loan-to-value limits and a tighter mortgage servicing ratio (MSR) in its bid to cool the buoyant market.

But what was different about TDSR was that sales and prices have remained subdued, unlike the recovery that came after the initial shock of previous cooling measures wore off.

Said Elaine Chow, head of research at Chesterton Singapore: "Compared with the series of cooling measures imposed previously, the TDSR single-handedly chilled the private residential market."

The take up rate for new private home sales (including ECs) in the third quarter was 80 per cent, down from 125 per cent last year, Ms Chow said.

"On a month-to-month basis, the take up rate fell from 106 per cent in July to 81 per cent in August and dipped further to 72 per cent in September 2013."

Analysts expect sales volume to come off significantly from the record of about 22,000 last year, to a more sustainable range of 15,500 to 18,500 units.

For the entire year of 2013, prices could dip up to 3 per cent, going by their predictions, in part as developers cut prices to attract prospective buyers.

Christine Li, head of research at OrangeTee, noted that it was only after TDSR was implemented that developers started to reduce their selling prices.

Even as many consultants expect prices to moderate in 2014, they see severe price corrections as unlikely barring economic shocks.

Recent launches such as the Duo Residences in Bugis, The Inflora in Upper Changi and the Sky Vue in Bishan drew keen interest from buyers.

Lee Lay Keng, head of Singapore research at DTZ, said owners and developers still have holding power and there is unlikely to be widespread distress sales "although price resistance has set in and certain areas could see prices weakening".

Supply will also continue to exert pressure on prices. Ms Chow from Chesterton estimates some 77,000 private non-landed homes and ECs will be completed in the next three years.

Ms Li from OrangeTee noted that the long-term average from 2003 to 2012 is about 9,396 units a year.

While demand over the next two years is likely to be able to meet supply, some analysts have cautioned about 2016.

"Should our population growth and labour workforce not keep pace with the influx of completed supply, vacancy rates could rise further and add pressure to rentals and prices in the long run," said Knight Frank's Ms Tan.

But projects of perceived value - such as those in good locations, are in an area of limited supply or are offered at lower prices than earlier projects in the vicinity - should continue to shore up demand.

OrangeTee's Ms Li said that as prices fall, "buyers looking out for good deals may still come back to the market", and prices could be supported by attractive projects expected to launch in the first half of 2014, such as for the site at Kim Tian Road.

Ong Kah Seng, director at R'ST Research, said much will depend on whether developers continue to offer discounts to meet buyers reduced financial power post-TDSR.

"For those unwilling to cut prices, and even if their project designs are exceptional, buyers can't afford it due to their TDSR limits . . . then these projects will see slower sales."

With the bulk of completions coming from the mass market, or Outside Central Region (OCR), analysts see prices falling by anywhere from 3 to 10 per cent.

In the Core Central Region (CCR), prices could ease further as the ABSD and TDSR continue to bite.

The bright spot may come from city-fringe, or Rest of Central Region (RCR) homes, which benefit from their location close to the city and lower prices than CCR offerings.

Sales volume in 2014 could come in anywhere from 12,000 to 18,000 units, according to estimates.

Consultants noted also that more Singaporean investors are heading overseas amid high prices and stringent property measures. They advised that while investment quantums are lower in general and that there are opportunities, investors should be aware of potential pitfalls and do their due diligence before committing.

"A cheap deal is not always a good deal," said Ms Li from OrangeTee.