http://www.businesstimes.com.sg/spec...units-20130829

Published August 29, 2013

TDSR rule may be driving homebuyers to small units

Market watchers feel the new measure is behind sector's price recovery in July

By Kalpana Rashiwala [email protected]


PRICES of small completed private apartments and condos in Singapore recovered in July after slipping for two consecutive months, latest flash estimates from the National University of Singapore (NUS) show.

Market watchers suggest the Total Debt Servicing Ratio (TDSR) framework, which took effect from June 29, could be driving buyers to the small-unit segment.

The Singapore Residential Price Index (SRPI) for small units (up to 506 sq ft) islandwide rose 2 per cent in July over June to its highest level since December 2001, the start date of the SRPI series.

The revised June SRPI for small units reflects a 0.5 per cent month-on-month dip. In May, the index slipped 1.3 per cent.

Month-on-month, year-to-date as well as year-on-year, the SPRI for small units has outperformed the other three indices in the series.

In July, SPRI for Central Region (excluding small units) was unchanged from the previous month after slipping 1.5 per cent month on month in June. Central Region is defined as districts 1-4 (including the financial district and Sentosa Cove) and the traditional prime districts 9, 10 and 11.

The SRPI for Non-Central Region (again excluding small units) increased 0.3 per cent month on month in July following a one per cent gain in June.

The Overall SRPI was up 0.2 per cent in July, against a 0.1 per cent drop in June.

Minted by NUS' Institute of Real Estate Studies (IRES), the SRPI series tracks prices of completed non-landed private homes, excluding executive condominiums.

Year-to-date, SRPI for small units has climbed 6.1 per cent, outperforming increases of 1.9 per cent for the Central Region, 2.8 per cent for the Non-Central Region and 2.4 per cent for the Overall indices.

The latest July flash estimates also reflect a 10.2 per cent year-on-year hike in the index for small apartments, surpassing the increases of 4.2 per cent in Central Region, 9.9 per cent for Non-Central Region and 7.3 per cent for the Overall indices.

Commenting on the hike in the small-unit index for July after two consecutive months of decline, associate professor Lum Sau Kim of IRES suggests that this could be due to the "impact of the TDSR measures, which may have creamed affordability and driven some buyers towards small units".

Lee Lay Keng, head of Singapore research at DTZ, observed that based on caveats data downloaded yesterday, the number of resale transactions for non-landed private homes declined around 11 per cent in July compared with June.

"With the new TDSR framework, transactions now take a longer time to close as the loan application process will be more onerous, involving more compliance checks to adhere to the TDSR limit," she said.

Moreover, the TDSR framework could lead to some buyers choosing smaller or more affordable units entailing a lower absolute price quantum, as the maximum loan that they now qualify for may be reduced.

"Notwithstanding the decline in overall resale transactions in July, the number of deals involving small units rose in July compared with June, which could have supported the 2 per cent m-on-m increase in resale prices for small units - the highest pace of growth across all segments in July," said Ms Lee.

SLP International executive director Nicholas Mak predicts that in the coming months, the Overall SRPI on the whole may post either weak increases or even declines as the TDSR starts to have an impact on the resale market.