TDSR may have hit HDB upgraders more: DTZ

They buy 52% fewer private homes in Q3, vs 46% for private address holders

[SINGAPORE] The total debt servicing ratio (TDSR) framework appears to have made a bigger dent on purchases of private homes by those with HDB addresses than by those with private addresses, according to a caveats analysis by property consulting group DTZ.

The TDSR framework, which requires financial institutions that grant property loans to take into consideration borrowers' total debt servicing obligations, took effect in late June.

In Q3 this year, those living in HDB flats picked up 1,574 private homes - a drop of about 52 per cent from the 3,303 units they bought in Q2. This was a bigger percentage slide than the 46 per cent fall in purchases by those with private addresses to 2,102 in Q3.

As a result, the share of HDB dwellers among private home buyers declined from 46 per cent in Q2 to 43 per cent in Q3. Conversely, those with private addresses saw their share go up from 54 per cent to 57 per cent.

However, for the first nine months, HDB flat dwellers' share of private home purchases was 44 per cent, unchanged from 2012.

"Perhaps HDB upgraders may be affected more by the TDSR rules as they are more likely to need a loan when they upgrade from the HDB flat to private housing - compared with other property investors," said Lee Lay Keng, head of Singapore research at DTZ.

DTZ's analysis was based on caveats data on the Urban Redevelopment Authority's Realis system as at Tuesday. The figures could change as more caveats for September are lodged in the next few weeks.

Analysts stress that not all those with HDB addresses who buy a private home are necessarily HDB upgraders. In some cases, they may be acquiring a small private apartment as an investment, for rental income. "So such buyers are investors," said Ku Swee Yong, CEO of Century 21 Singapore.

However, among the ranks of HDB upgraders, the purchase of private homes may be hit by the TDSR rules "because those who do qualify to buy a unit in a new executive condo (a public-private housing hybrid) project will consider an EC more favourably over buying a private home because, firstly, it is less stringent on borrowing", he added.

An upgrader's existing HDB monthly mortgage payment will not be factored into TDSR calculations when a bank assesses the amount of loan to grant him for a EC unit he buys directly from a developer - since current rules require such a buyer to sell his HDB flat within six months of the EC project's completion.

On the other hand, if an HDB upgrader were to buy a private condo, the monthly mortgage payments on both his existing HDB flat and the new condo purchase will be counted as part of monthly total debt repayments, which must not exceed 60 per cent of a borrower's gross monthly income under the TDSR framework.

"So now, the sandwich class becomes very privileged," quipped Mr Ku, referring to the group of HDB dwellers who choose to buy EC units rather than private condos.

A monthly household income cap of $12,000 is set on those buying an EC unit from a developer.

Looking ahead, Mr Ku expects that the purchase of private homes by those with HDB addresses will continue to be weighed down by the TDSR rules because "profile-wise they tend to be the ones who require much higher LTV (loan-to-valuation) compared with those already living in a private home".

"To compound things, the valuation of HDB resale flats could be trending down. So in the case of a real upgrader, he has to factor in the very real possibility that when he wants to dispose of his HDB flat after moving to a private condo, he may not be able to fetch today's price."

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