With the introduction of Total Debt Servicing Ratio (TDSR) on 28th June 2013 and effective on 29th, had cause some ripple effect in the property market. Bank took around a month to seek clarification with MAS and resulted in many loan approval delayed.
Moreover, it seems that although this is not a cooling measure according to the Ministry, has already caused the market to see the much lower transaction.
In The Business Times 17th, Sept 2013 reported that the rosy new launches sales are suffering from weak sales. The sales in various new launches vary, for example in The Tembusu saw more than half of its projects sold since launch despite being launch in hungry ghost festival.
However, The Glades saw only 80 units sold and 45 units sold at The Skywoods in early Sept. And the prices set a slightly lower than the neighbouring new launches.
Looking back on the day TDSR was being implemented; its just shortly after the news of J Gateway was entirely sold out with some units going out at more than $1,700psf. Could this be the final straw that triggers MAS to introduce TDSR?
The high profile news of a project near Jurong MRT can fetch more than $1,700psf does not reflect very well on the government’s effort to cool the market? Alternatively, could it be just a coincident being introduced?
However, one thing for sure is that the state board already have already a set of new measures in their ‘pocket’, ready to be announced and implemented with immediate effect when the earlier rules fail to achieve the desired result.
How has the TDSR impacted the market? Approval In Principle or Letter of Offer from the bank took much longer to approve, from 2 hours before TDSR to 3 weeks with the additional documents required to be submitted.
However, banks practices vary on such requirements. Some banks are more strict in seeing all the paperwork and some claim that is just signing an undertaking form to declare their status will do. It is still up to the bank to do their due diligent to ensure compliance.
At this stage, there is still clarification pending to be answered by MAS. Hence the clarity of the new measure still needs time to be iron out.
However, for an operational company are not affected by this ruling as their loan has another set of criteria to be met. Moreover, for an investment company set up to buy properties (e.g., Commerical / Industrial) to collect rental are not affected by the measure according to the statement by MAS release in The Straits Times.
However, the catch is that bank will take the company director as the borrower which TDSR might still be applicable. The good news is that if the properties to purchased tenanted with tenancy of at least balance of 6 months, the rental income can consider in the TDSR calculation.
With the introduction of TDSR, it might be bad news for some but also good news for new buyers. It also helps to make many investors/property owners more realistic on selling prices of their properties. They understand that although consumers can take lower loans to buy.
This is more evident from developers setting their new launches prices lower than their expectation. Take CDL’s Sky Vue, for example, is pricing (Indicative) at $1,400 to $1,530psf for the studio units, which is much lower than around $1,700psf that it priced for Sky Habitat. Developers are known to the among the 1st to act in the market. Hence we can expect prices to stabilise.
After all, properties owners are taking references from the new launches which went all the way North to price their resale units. With the high land cost, the developer had bid for, left limited free play for them to lower their prices to attract buyers.
Can TDSR help to stabilise the property market despite low-interest rate, strong fundamental and high liquidity in the market (Articles shows more saving in the bank)?
Will there be price correction? Will there be more value buy properties in the market? Will tightening of the foreigner working in Singapore affect the rental market to bring the residential properties to a more sustainable level?
By 3Q2014, there should be clearer how the new measures had impacted the market and had the price reach or reaching a more sustainable level.
If you are looking at the local market for an investment opportunity, you might be disappointed in the options that are available to you. However, what’s stopping you from looking beyond Singapore’s shore? After all, investing in properties contain high risk too.