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Property

Total debt ratio an ant bite?

By COLIN TAN
-
05 July


The Total Debt Servicing Ratio (TDSR) rule announced by the Monetary Authority of Singapore (MAS) last Friday is expected to slow down housing sales but not affect prices in a big way; this is the general view among property analysts, but I am inclined to think that even the impact on sales will be muted.

Under the TDSR, banks will not be able to approve a loan if the monthly repayments of a home buyer’s total debt obligations exceed 60 per cent of his or her gross income. More importantly, banks have to use a standardised set of guidelines. Those who take housing loans will now have to be named as the owners of the property. This means investors can no longer avoid paying additional buyer’s stamp duties (ABSD) or secure larger mortgages or loans with longer tenures by using their children’s names.

Notably, the MAS did not provide any statistics on the extent of the gap between existing circumstances and its preferred situation. But it did say the new rules should not be seen as a new cooling measure. I interpret this to mean that the prevailing problems are not a big deal at the moment.

For sure, the new rules will take out potential investors at the margins, but it is difficult to pin down how big this group of buyers is.

Analysts say the average mortgage servicing ratios are currently well within the 30 to 40 per cent limit and while the TDSR is higher, it is substantially lower than the prescribed 60 per cent. Meanwhile, on-the-ground checks by some analysts show about 10 to 20 per cent of current purchasers use their children’s names to buy additional properties.

We should not assume that all investors are stretching themselves too thinly, definitely not the seasoned ones. Investors tend to use other people’s money first before using their own, meaning — even if they have the means — they will use borrowings whenever they can.

As for those buying in their children’s names, it would be rather silly not to avoid the ABSD if they can. Without this loophole, they may now be less hasty and more careful in putting down money on a property.

Most of us have a tendency to underestimate the depth of liquidity in the market. And that is why many have got it wrong time and again when predicting a market correction after each set of cooling measures.

Analysts have often described the amount of funds flowing into Singapore to be of tsunami proportions. This tsunami has overcome seven sets of property cooling measures. Compared to the curbs introduced in January, the new TDSR is probably just an ant bite. I believe the kick, if it comes, is when the MAS does a review and introduces more stringent ratios and benchmarks. Until this happens, I think the new TDSR will not have an impact on the volume of sales, unless liquidity in the market starts to thin. Do we have any evidence of this?

Global stock markets have been jittery recently due to the potential unwinding of stimulus in the United States economy. But if the jitters are not prolonged and there are no further clues on the unwinding, it is hard to see any significant slowdown in both housing sales and prices here.

ABOUT THE AUTHOR:

Colin Tan is head of research and consultancy at Chesterton Suntec International.