http://www.businesstimes.com.sg/prem...nches-20130910

Published September 10, 2013

TDSR casts shadow over sales at new launches

By Kalpana Rashiwala [email protected]


[SINGAPORE] The response to last week's launches of The Glades in Tanah Merah and The Skywoods in the Dairy Farm area shows just how severely the new loan curbs have affected private home sales. Not only were sales relatively weak but they also seemed to have pretty much stalled after the first day of booking.

Keppel Land said that it had sold around 80 units at 99-year-leasehold The Glades, next to Tanah Merah MRT Station. The bulk of the sales are understood to have been done on the first day, Friday. KepLand said that the average price for the 200 units released in the 726-unit development was around $1,450-1,500 per square foot (psf).

In contrast, Fragrance and World Class Land are said to have sold about 220 units over March 15-17 when they released the nearby Urban Vista condo. The average price was about $1,500 psf.

Meanwhile, the consortium developing The Skywoods, also a 99-year project, sold 35 units last Friday, followed by 10 units on Saturday and Sunday combined. Its average price for the first 150 units released in the 420-unit project is $1,250 psf.

Neo Tiam Boon, CEO of TA Corporation, one of Skywoods' developers, said: "We didn't sell as much as we wanted."

He said that the total debt servicing ratio (TDSR) framework had affected sales. "Even though we had a pretty big turnout of visitors at our showflat, many said they needed to talk to banks. Nowadays, qualifying for a loan is challenging and in addition, some buyers may not be familiar with the increased number of documents they have to submit. So we are giving potential buyers a bit more time to secure funding."

Explaining why the bulk of sales now take place on the first day of sales bookings, PropNex CEO Mohamed Ismail highlights that since the introduction of the TDSR in late June, developers have been opening their showflats two weeks ahead of the start of booking to give potential buyers time to get in-principle loan approval.

"This means that those who are very keen on the project would have the opportunity to make a decision prior to the booking. Hence the bulk of sales would be on the first day itself."

On the other hand, potential buyers who visited the showflat after sales bookings began would need another 10 days or so to sort out their finances, he said. "So we could see a trickle of transactions coming in maybe two weeks down the road."

Savills Singapore research head Alan Cheong said: "The authorities may have set the TDSR bar too high - at 60 per cent. If you set the dyke too high, hardly any liquidity flows through."

A major hurdle for HDB (Housing & Development Board) upgraders is that monthly mortgage repayments on both their existing HDB flat as well as the loan for a new condo purchase will be counted as part of total monthly debt repayments, which must not exceed 60 per cent of the borrower's gross monthly income.

On the other hand, the existing HDB monthly mortgage payments will not be factored into TDSR calculations when banks assess the amount of loan they grant to a buyer of an executive condominium (EC) directly from a developer, notes Nicholas Mak, executive director at SLP International. This is because current rules require such buyers to sell their HDB flat within six months of the EC project's completion.

The Sea Horizon EC project in Pasir Ris, for example, managed to find buyers for 300 of its 495 units over Saturday and Sunday. The average price is slightly above $800 psf.

Mr Mak said that the sales result for Sea Horizon was comparable to the 289 units sold for Lush Acres in Sengkang last month, during its first weekend. Lush Acres was priced at $785 psf on average.

Meanwhile, the TDSR may help to rein in exuberant land bids at state tenders. "That may be the strategy for local developers and foreign developers that are familiar with the local market," said Savills' Mr Cheong. "But there may be new kids on the block who may bid high to gain market entry - and bids could go awry."

A DTZ report yesterday highlighted the dangers of escalating land prices for 99-year-leasehold non-landed private housing sites at state tenders. It noted that the average land price for such sites awarded between 2008 and the first half of 2013 has increased at a compounded annual growth rate (CAGR) of 18.2 per cent - outstripping a 5.2 per cent CAGR in the Urban Redevelopment Authority price index for non-landed private homes.

The average land cost as a percentage of total development cost for non-landed private residential sites sold by the state has also risen from 42 per cent in 2008 to 62 per cent in the first half of 2013.

DTZ said: "Despite the increase in land cost, projects continue to be profitable as developers were able to pass the higher land cost to buyers. However, in the light of market cooling measures, the TDSR framework, and the possibility of a rise in interest rates going forward, the assumption that the higher land cost can be supported by higher project selling prices has to be re-examined.

"Given that land cost has increased to a sizeable average of 62 per cent of total development cost in H1 2013, a disciplined and guarded approach in land bidding practices is needed to ensure sustainable growth in the property market."