5-10% borrowers over-leveraged on property purchases: MAS

[Amber Woods]

Published July 23, 2013

5-10% borrowers over-leveraged on property purchases: MAS

By
Siow Li Sen




THE Monetary Authority of Singapore (MAS) is concerned about Singaporeans over-extending themselves with property loans.

If mortgage rate were to rise by 3 percentage points, proportion of borrowers at risk could reach 10-15 per cent, from estimated 5-10 per cent now who are already over leveraged on their property purchases, MAS said on Tuesday.

Singapore's banking system remains sound and local banks have strong financial positions, are well capitalised with prudent provisions against loss, said Ravi Menon, MAS managing director.

"They have healthy buffer against property price reductions. Average housing loan-to-value ratio in banking system is just under 50 per cent," he said.

"It is household sector we are concerned about," he said.

At aggregate level, household balance sheets are resilient. Cash and deposits exceed household debt.

"But the health of balance sheet is not uniform across all households," said Mr Menon.

"Many households could have over-extended themselves, fueled by low interest rates and stretched loan tenures," he said.

"It is so tempting and easy to borrow when interest rates are so low," he said.

A vast majority of mortgage loans in Singapore are on floating rate packages, which means households will face higher monthly repayments when interest rates normalise.

MAS estimated 5-10 per cent of borrowers have probably over leveraged on their property purchases, which is defined when they have total debt service payments at more than 60 per cent of their income.

Last month, MAS introduced the total debt servicing ratio framework where a borrower's total monthly debt payments must not exceed 60 per cent of monthly income.

[kane]

thank you for making sure this market is sustainable in the long run.

[eng81157]

MAS reported 5-10% of Singaporeans have over-leveraged themselves. assuming that truly shit hits the fans when interest rate rises, does this mean that only these 5-10% are likely to conduct fire sales?

if so, is the volume large enough to constitute to an oft-mentioned 20% drop in prices?

if not, does this mean the current price ceiling are likely to form tomorrow's support?

questions, questions, questions

[greglhc]

MAS reported 5-10% of Singaporeans have over-leveraged themselves. assuming that truly shit hits the fans when interest rate rises, does this mean that only these 5-10% are likely to conduct fire sales?

if so, is the volume large enough to constitute to an oft-mentioned 20% drop in prices?

if not, does this mean the current price ceiling are likely to form tomorrow's support?

questions, questions, questions

Sounds like one of their assumptions is that household income not affected in the event of interest rate increase.

[wt_know]

so many reports coming out to talk about "rising" interest rate
had any banks rise their interest rate already or the tide is coming fast and furious?

[teddybear]

Wow! I envy these people who are able to over-leverage and earned a big pot of gold!
Now you no longer have the chance to earn a big pot of gold by over-leveraging!
The typical peasants should just work hard for your income, no more speculating by leveraging to earn easy money, leave that to the rich and the well-connected people who are able to loan more money from the banks and not restricted by the TDSRs (e.g. you set up companies and must be of reasonable size before you can use these to invest in properties and still can get cheap loan and high leverage...)........

Published July 23, 2013

5-10% borrowers over-leveraged on property purchases: MAS

By
Siow Li Sen




THE Monetary Authority of Singapore (MAS) is concerned about Singaporeans over-extending themselves with property loans.

If mortgage rate were to rise by 3 percentage points, proportion of borrowers at risk could reach 10-15 per cent, from estimated 5-10 per cent now who are already over leveraged on their property purchases, MAS said on Tuesday.

Singapore's banking system remains sound and local banks have strong financial positions, are well capitalised with prudent provisions against loss, said Ravi Menon, MAS managing director.

"They have healthy buffer against property price reductions. Average housing loan-to-value ratio in banking system is just under 50 per cent," he said.

"It is household sector we are concerned about," he said.

At aggregate level, household balance sheets are resilient. Cash and deposits exceed household debt.

"But the health of balance sheet is not uniform across all households," said Mr Menon.

"Many households could have over-extended themselves, fueled by low interest rates and stretched loan tenures," he said.

"It is so tempting and easy to borrow when interest rates are so low," he said.

A vast majority of mortgage loans in Singapore are on floating rate packages, which means households will face higher monthly repayments when interest rates normalise.

MAS estimated 5-10 per cent of borrowers have probably over leveraged on their property purchases, which is defined when they have total debt service payments at more than 60 per cent of their income.

Last month, MAS introduced the total debt servicing ratio framework where a borrower's total monthly debt payments must not exceed 60 per cent of monthly income.

[indomie]

MAS reported 5-10% of Singaporeans have over-leveraged themselves. assuming that truly shit hits the fans when interest rate rises, does this mean that only these 5-10% are likely to conduct fire sales?

if so, is the volume large enough to constitute to an oft-mentioned 20% drop in prices?

if not, does this mean the current price ceiling are likely to form tomorrow's support?

questions, questions, questions

Those over leveraged folks mostly resides at mt sinai

[eng81157]

Those over leveraged folks mostly resides at mt sinai

our dear 'friend' is betting on his parents, parents-in-law to move in with him, rent out their HDB and help offset some of his monthly mortgage payments.......

how dare you claim that he's over-leveraged.......

[eng81157]

sorry but i don't buy this TDSR bs.

if my household earns $20000/mth, why can't i plough 60% of my household income into properties? $8000 is a pretty comfortable sum to live by (assuming that we aren't living the high life)

if my household earns $5000/mth, ploughing 50% of my income into properties is taxing. it's trying to live with $2.5k per month.

[economist]

Oh, this is the correct thread to post my question:

But some owners who bought a few years ago may have paid up in full. The question is how many percentage of the owners still have outstanding mortgages. And MAS's 5-10% over-leveraged borrower refers to 5-10% of those still with outstanding mortgages. So in terms of percentage of total stock (with or without outstanding loans), it should be lower than 5-10%.

I recall someone in another thread mentioned he read somewhere that only 40% of HDB owners still have outstanding loans (or 60%?), not sure about private properties.

[felicia_sg]

And that 30% haircut on rental income and self-employed income and bonuses etc also doesn't make sense right?

sorry but i don't buy this TDSR bs.

if my household earns $20000/mth, why can't i plough 60% of my household income into properties? $8000 is a pretty comfortable sum to live by (assuming that we aren't living the high life)

if my household earns $5000/mth, ploughing 50% of my income into properties is taxing. it's trying to live with $2.5k per month.

[mermaid]

sorry but i don't buy this TDSR bs.

if my household earns $20000/mth, why can't i plough 60% of my household income into properties? $8000 is a pretty comfortable sum to live by (assuming that we aren't living the high life)

if my household earns $5000/mth, ploughing 50% of my income into properties is taxing. it's trying to live with $2.5k per month.

I oso dun buy tis rule. I am abt 80% TDSR but Im still eyeing for another ppty!

[radha08]

so now what more cm...

[DKSG]

I oso dun buy tis rule. I am abt 80% TDSR but Im still eyeing for another ppty!

How you do that ? Can share with your humble Office Boy ?

DKSG

[Ringo33]

I oso dun buy tis rule. I am abt 80% TDSR but Im still eyeing for another ppty!

are you trying to attract tax man's attention?

[狮子王]

And that 30% haircut on rental income and self-employed income and bonuses etc also doesn't make sense right?

Self employed or rental income are NOT REGULAR OR STABLE INCOME.

For example when a rented unit changes tenants, it may be vacant for a few months before the next tenant. The more supply of vacant units in the market at that time, the higher chances of it remaining vacant.

For a hawker, some months got more customers, but during periods like SARS or HAZE then less revenue.

Hence applying a 30% haircut to such income is VERY LOGICAL INDEED.

[狮子王]

Many misunderstood FIXED RATES LOANS.

Fixed rate meaning Prime + Fixed rate. The second portion is fixed, but the PRIME RATES are not. During my time, they used the term PRIME rates, now I think they call it differently you have to ask your bankers.

[狮子王]

Many misunderstood FIXED RATES LOANS.

Fixed rate meaning Prime + Fixed rate. The second portion is fixed, but the PRIME RATES are not. During my time, they used the term PRIME rates, now I think they call it differently you have to ask your bankers.

Better go ask your bankers and check properly.

[狮子王]

Better go ask your bankers and check properly.

In the 1990s, banks have the right to devalue YOUR assets when market crashes. The banker will ask you to Top Up with CASH your loans to a level more comfortable to them. Now there are so many banks with different practices, think you better check around or read your loan contracts carefully.

[狮子王]

In the 1990s, banks have the right to devalue YOUR assets when market crashes. The banker will ask you to Top Up with CASH your loans to a level more comfortable to them. Now there are so many banks with different practices, think you better check around or read your loan contracts carefully.

In 1980, 1997, and 2008 there were 3 unexpected crisis. ( Oil Crisis, Currency Crisis and Systemic Liquidity dried up )

The overleveragers were not killed by interest rate increases, but 2 very sharp spikes in interest rates for a short duration. The rates were 10% and 20% respectively for 1980 and 1997. That 2 rates were enough to make many investors missed their loan payments and hence compounded their interest payments.

In 2008, supposedly after the Lehman's collapse; this should happen, that is, a sharp spike in interest rates to beyond 20%. But that never happen BECAUSE FED PUMPED THE MONEY INTO THE SYSTEM.

Last month, on fear, China market also experience a short spike of 30%.


Don't believe go and do your own research and see for yourselves what killed the overleveragers.

[狮子王]

Self employed or rental income are NOT REGULAR OR STABLE INCOME.

For example when a rented unit changes tenants, it may be vacant for a few months before the next tenant. The more supply of vacant units in the market at that time, the higher chances of it remaining vacant.

For a hawker, some months got more customers, but during periods like SARS or HAZE then less revenue.

Hence applying a 30% haircut to such income is VERY LOGICAL INDEED.

For me, I would apply 50% haircut to them instead. Tharman is very kind already.

[狮子王]

In 1980, 1997, and 2008 there were 3 unexpected crisis. ( Oil Crisis, Currency Crisis and Systemic Liquidity dried up )

The overleveragers were not killed by interest rate increases, but 2 very sharp spikes in interest rates for a short duration. The rates were 10% and 20% respectively for 1980 and 1997. That 2 rates were enough to make many investors missed their loan payments and hence compounded their interest payments.

In 2008, supposedly after the Lehman's collapse; this should happen, that is, a sharp spike in interest rates to beyond 20%. But that never happen BECAUSE FED PUMPED THE MONEY INTO THE SYSTEM.

Last month, on fear, China market also experience a short spike of 30%.


Don't believe go and do your own research and see for yourselves what killed the overleveragers.

You see, many do not understand this risk involved. This is especially true for some of our foreigner brothers and sisters who were brought up under a totally different kind of financial or economic system.

The lack of understanding of the Western Capitalist Free Market makes these brothers and sisters very bold in investing.

You are very lucky to be protected same like us by our PAP government when you invest into our system.

My advice is to be prudent and alert when investing in a Western type of Free Market Capitalist System like Hong Kong or Singapore. It has a track record of resetting and redistributing the wealth in the system when the chance arises

[狮子王]

You see, many do not understand this risk involved. This is especially true for some of our foreigner brothers and sisters who were brought up under a totally different kind of financial or economic system.

The lack of understanding of the Western Capitalist Free Market makes these brothers and sisters very bold in investing.

You are very lucky to be protected same like us by our PAP government when you invest into our system.

My advice is to be prudent and alert when investing in a Western type of Free Market Capitalist System like Hong Kong or Singapore. It has a track record of resetting and redistributing the wealth in the system when the chance arises

Count yourselves lucky to have a government like PAP, otherwise I cannot imagine what will happen next if indeed an unexpected event happens. As it is unexpected, better be safe than sorry.

Just remember, do not be greedy and you should be okay in a PAP run Singapore. I cannot say the same for other countries.


Good Luck.

[Secretariat]

Published July 23, 2013

5-10% borrowers over-leveraged on property purchases: MAS

By
Siow Li Sen




THE Monetary Authority of Singapore (MAS) is concerned about Singaporeans over-extending themselves with property loans.

If mortgage rate were to rise by 3 percentage points, proportion of borrowers at risk could reach 10-15 per cent, from estimated 5-10 per cent now who are already over leveraged on their property purchases, MAS said on Tuesday.

Singapore's banking system remains sound and local banks have strong financial positions, are well capitalised with prudent provisions against loss, said Ravi Menon, MAS managing director.

"They have healthy buffer against property price reductions. Average housing loan-to-value ratio in banking system is just under 50 per cent," he said.

"It is household sector we are concerned about," he said.

At aggregate level, household balance sheets are resilient. Cash and deposits exceed household debt.

"But the health of balance sheet is not uniform across all households," said Mr Menon.

"Many households could have over-extended themselves, fueled by low interest rates and stretched loan tenures," he said.

"It is so tempting and easy to borrow when interest rates are so low," he said.

A vast majority of mortgage loans in Singapore are on floating rate packages, which means households will face higher monthly repayments when interest rates normalise.

MAS estimated 5-10 per cent of borrowers have probably over leveraged on their property purchases, which is defined when they have total debt service payments at more than 60 per cent of their income.

Last month, MAS introduced the total debt servicing ratio framework where a borrower's total monthly debt payments must not exceed 60 per cent of monthly income.

We could make an estimation of the number of units held by borrowers considered over-leveraged.

(A borrower of one unit is highly unlikely to fail the TDSR guideline; while there could be cases similar to Mermaid's, the number should be immaterial).

So, a borrower that is over-leveraged should have more than 1, 2, or 3 mortgages at hand.

For simplicity, let's use the estimated 100,000 units completion for the next 4 year (per ST article: Cai Jin). [Therefore, in this sampling we don't even count those units already TOPed]

This borrower is likely to have bought at least one of his units in this cohort, but let's count one unit.

5-10% of 100,000 units = 5,000 - 10,000 borrowers.

As this borrower should have more than 1, 2, or 3 units, let's just use the multiplier of 2 units and this gives us

10,000 to 20,000 units by borrowers considered over-leveraged by MAS.

Take note that the TDSR used the forward interest rate of 3.5% as calculation, whereas the 5-10% referred to those existing borrowers prior to the TDSR framework, probably the courtesy of J Gateway.

Cheers!

[indomie]

How about retirees still servicing home loan?

[repanse71]

In the 1990s, banks have the right to devalue YOUR assets when market crashes. The banker will ask you to Top Up with CASH your loans to a level more comfortable to them. Now there are so many banks with different practices, think you better check around or read your loan contracts carefully.

For different reasons, banks do assess the current value of the property... CMV, FSV, discounted CMV/FSV....

In the standard contract, banks do have the right to ask for top-up...


For the past 20+ years, what had happened....

For fully disbursed loans, borrowers were almost never asked to top up their principal reducing loans regardless of valuation...

For partially disbursed loans, yes, some had been asked to top up.

For interest only loans (recently banned by MAS), top-up to certain maintenance LTV is almost a certainty.

So, for those who recently bought and paid 20% downpayment, you could be in danger.... if there is a price correction.... i.e. if loan approved with valuation at $1m, if dropped to $0.8m, bank could disburse up to 80% of $0.8m, with the rest as top-up amount....

But, what happened in the past might not hold in future...
So, good luck!

Regards

[walkthetiger]

My advice is to be prudent and alert when investing in a Western type of Free Market Capitalist System like Hong Kong or Singapore. It has a track record of resetting and redistributing the wealth in the system when the chance arises

Well said..Spot on..

[wt_know]

even if 10-15% borrower default
they can cause firesale and bring down the spore properties?

If mortgage rate were to rise by 3 percentage points, proportion of borrowers at risk could reach 10-15 per cent, from estimated 5-10 per cent now who are already over leveraged on their property purchases, MAS said on Tuesday.

[k00L]

In 1980, 1997, and 2008 there were 3 unexpected crisis. ( Oil Crisis, Currency Crisis and Systemic Liquidity dried up )

The overleveragers were not killed by interest rate increases, but 2 very sharp spikes in interest rates for a short duration. The rates were 10% and 20% respectively for 1980 and 1997. That 2 rates were enough to make many investors missed their loan payments and hence compounded their interest payments.

In 2008, supposedly after the Lehman's collapse; this should happen, that is, a sharp spike in interest rates to beyond 20%. But that never happen BECAUSE FED PUMPED THE MONEY INTO THE SYSTEM.

Last month, on fear, China market also experience a short spike of 30%.


Don't believe go and do your own research and see for yourselves what killed the overleveragers.

looks like you are a veteran!
I think MAS scenario is like this -> US FED officially tapers off the QE -> 10Yr treasury yield rises to 4%-> all money is sucked back to US (given risk-free yield is 4%) -> Asian central banks (ID, PH, VN, MY) all kancheong with capital outflow, start to raise interest rates to squeeze out those who short their currencies -> SG is being implicated (just like in 97 financial crisis) and SGD goes into spiral down, so MAS raise o/n rates to 4% , dislocating from US interest rates (SOR rate shooting much higher than sibor)

I seriously think the above should not happen, but the US FED QE actions are unprecedented, so nobody knows what gonna happen when sh*t hits the fan

[star]

Lol. With so many people on sideline now there is no need even for a drop. Just remove cm7 you can see people queue from changi to jurong to buy property.