TDSR running out of steam?

By Sam Baker

[email protected]

Published: 4:02 AM, November 21, 2014

One conclusion we can draw from the property market cooling measures is that placing limits on borrowing is more effective than levying additional stamp duties in bringing down housing prices in Singapore. However, even the loan curbs appear to be losing their effectiveness in reducing prices further.

The SRX Property Index for Private Resale Flats shows that the first Additional Buyer’s Stamp Duty (ABSD1) — imposed in December 2011 — did little to curtail resale volume and prices.

Although the foreign buyer surcharge of 10 per cent discouraged investment from overseas, diverting money originally destined for Singapore to other international property markets such as London and New York, ABSD1 actually spurred the local investment market.

ABSD1 did local investors a favour because it removed some foreign competition for private properties while creating expectations for lower prices. Singaporeans thought they could take advantage of the lower demand from foreigners to get a better price.

However, things did not go according to plan because of low interest rates. As a result of the low rates, property was a much more attractive asset class than cash and bonds. Furthermore, financing property investments was cheap. Armed with inexpensive financing and facing little competition from overseas, more Singaporeans entered the market and drove prices up.

Recognising that ABSD1 did little to discourage local demand for private property, the Government raised the additional duties in January last year. ABSD2 levied a 15 per cent tax on most foreign buyers and a 7 per cent duty on Singaporean citizens purchasing a second property.

ABSD2 reduced the monthly resale volume range of 781-to-1,439 units in 2012, excluding the Chinese New Year holiday period, to the 581-to-734 range during the first half of 2013, excluding January and Chinese New Year.

However, ABSD2 did not cause a meaningful decline in prices because sellers, believing that cooling measures would not last forever, were willing to yield a little on price, but not that much.

They knew the stamp duties had not altered the fundamental value of their homes. As such, they could justify selling at the price plateau — since prices were high and unlikely to go up. In enough instances, they resisted going below the price plateau by exiting the market and sitting on the sidelines.

The Government clearly recognised that the stamp duties, even when applied to Singaporeans, were not doing the trick. So it introduced the Total Debt Servicing Ratio (TDSR) framework in June last year in an effort to prevent Singaporeans from over-borrowing.

The framework — which requires the financial institution to ensure the home loan does not push the borrower’s total debt obligations beyond 60 per cent of his or her total income, among other restrictions — worked.

It took a while, but private resale prices finally capitulated in July this year, when the market fell 5.6 per cent from its peak in January. Since then, prices have reached a new plateau, bouncing around the 168.8 and 169.8 range of the SRX Price Index for four consecutive months. As of last month, the latest SRX Property data showed prices are down about 5.2 per cent from the peak after a slight increase of 0.4 per cent since September.

This new plateau suggests a new support for prices in the private, non-landed housing market. In other words, prices seem to be stuck at these levels. In addition, looking at the SRX Property graph (picture), resale volume since March this year seems to have achieved a new equilibrium of around 400 units per month.

This new equilibrium in resale volume, coupled with the price plateau, suggests that the TDSR might have run out of steam in terms of its effectiveness in reducing prices further.

Therefore, for prices to continue to decline, something must be introduced into the equation to alter the market’s dynamics. So, the first question is whether the Government is satisfied with a 5 per cent decline. If not, what additional policy tools are available to the authorities?

Given that the cooling measures have proven that price is a stubborn variable in the property market, if it wants the price to drop further in the private non-landed resale market, the only way is to increase supply. Demand, at its current level, is about as far down as cooling measures can push it.

Sam Baker is co-founder of SRX, an information exchange formed by leading real estate agencies in Singapore to disseminate market pricing information and facilitate property listings and transactions. For more details on the data used in this article, visit