TDSR Singapore Impacting Property Market
The TDSR Singapore program works to make sure buyers are more prudent financially when it comes to buying property. There are various housing options available in the Singapore real estate market.
Your private home options include community style living, such as apartments or condominiums or landed properties. A landed property is a private home such as terrace house or a conservation house provides more exclusivity.
The property loan features utilises a Total Debt Servicing Ratio (TDSR) that allows you only to borrow up to 60 percent of your gross monthly income. That works to ensure that making your mortgage payment is a more prudent towards being able to afford your additional living expenses as well.
The TDSR Origination
The Singapore housing authority put the TSDR program in motion following the housing purchase situation at J Gateway Condos on June 28, 2013. Within the first day on the market, 736 of the 738 units were bought by investors or private home owners.
Many professionals in the real estate industry see the activity as a potentially positive sign that the harsh cooling measures on property purchases are beginning to disappear.
The TDSR provides a way for financial institutions to strengthen their credit underwriting procedures by issuing housing loans in a dollar amount that a potential buyer can comfortably afford to repay.
It also works to strengthen the Singapore housing market by preventing the possibility of high-risk housing loans entering in a payment default situation. Investors with historical ties to a property also stand to receive a higher return on their investment over time.
The TDSR Framework
The TDSR framework allows commercial lenders take into consideration includes any outstanding debts that you have on top of your monthly housing loan payment. Additional items of debt typically include the following things.
- Credit card balances
- Personal loan balances
- Student loan balances
- Automobile loan balances
- Other housing loan balances that may be outstanding
When you apply for a housing loan, a financial institution looks at your gross monthly income and subtract any of the outstanding debts you are currently repaying to identify your net monthly income amount. You might be able to take a loan up to 60 percent of that amount from any financial housing lender subjected to approval.
TDSR Loan Restrictions
The intention of the TDSR is to prevent you from securing a housing loan with a relevant payment that you are unable to afford each month. For that reason, there are several restrictions in place that serve as checkpoints in the housing loan calculation process.
Here are a few examples of some limitations that are in place.
- Loan to value Singapore ratio limits is at 80 percent.
- There is a tenure loan maximum of 35 years now. Certain conditions apply to loan tenures exceeding 30 years or homeowners that are age 65 or older.
- A 3.5 percent stress test of the interest rate must occur on each housing loan.
- Borrowers, mortgagors and guarantors have a single identity in the housing loan process.
These restrictions help commercial lenders adhere to the policy of ensuring that you do not secure a housing loan for an amount you are unable to repay. It also protects the overall Singapore housing market from going into a default repayment status.
The calculation formula for TDSR is fairly simple and focuses on dividing your total monthly debt by the sum of your gross monthly income. Take a look at the following example to gain an idea of how it works.
Example A: Standard TDSR Calculation
- Your Monthly Gross Income: $10,000
- TDSR Percentage: 60 percent
- TDSR Limitation Amount: $6,000 ($10,000 x 60 percent)
When you receive rental income, the TDSR program reduces the amount of that income by 30 percent. The new rental income total adds in with your gross monthly income to determine what your TDSR limitation amount. The following example explains how this works.
Example B: TDSR Limitation Calculation with Rental Income
- Your Monthly Rental Income: $3,000
- TDSR Haircut Reduction: $900 ($3,000 x 30 percent)
- Your New Monthly Rental Income: $2,100 ($3,000 – $900)
- Your Monthly Gross Income: $7,000
- Your New Monthly Income: $9,100 ($7,000 + $2,100)
- TDSR Limitation Amount: $5,460 ($9,100 x 60 percent)
These calculations work to your benefit by taking into account your entire personal financial picture before a financial institution issues you a housing loan.
The TDSR program places certain restrictions on the purchase price buyers can afford. For the seller to stay competitive, the property sales prices underwent a period of price adjustment in the real estate market.
As a result, the Singapore real estate market temporarily became weak while the change took place. Now the market is showing signs of strength once again, and opportunities are available for buyers to create investment opportunities.
Dylan Tan, your preferred real estate salesperson understands the Singapore housing market and the TDSR program. He can look at your investment portfolio and develop a practical plan for you to take into consideration when purchasing a Singapore home. Despite the negative news of the cooling measures, Dylan will show you how can you take advantage of the current market to make your money to work harder for you.