Effects of TDSR so far

The impact of the Total Debt Servicing Ratio (TDSR) became quickly apparent when it was introduced in June 2013, with private home sales dropping 73.3 percent to 482 units in July 2013 from 1,806 units in June 2013, said media reports.

Analysts noted suburban homes were most affected. Data compiled by Knight Frank Singapore indicated new home sales in the suburbs fell 63 percent in H2 2013 from the first half of the year.

Aimed at ensuring financial prudence among borrowers, the TDSR specifies that the total monthly payments’ of a borrower, including car and home loans and even credit card debts, should not exceed 60 percent of the borrower’s income.

Alice Tan, Knight Frank’s Director of Consultancy and Research, said, “The TDSR basically impacts on mortgage loan eligibility and affordability of private homes and the mass market segment typically caters to upgraders and middle-income home buyers.”

Tan noted these buyers might have decided to forego their purchases after their loan requests have been rejected.

Meanwhile, the effect of TDSR on prices became apparent only on the latter part of the year. Notably, the Urban Redevelopment Authority (URA)’s residential property price index slipped 0.9 percent in Q4 2013, marking its first decline in almost two years.

Home prices dipped again in Q1 2014 by 1.3 percent – its biggest drop since Q2 2009 – when prices plunged by 4.7 percent.

The TDSR also affected the private residential resale market. CBRE figures showed that sales volume in the secondary market fell 50 percent in H1 2014 from H1 2013.

With this, some developers have offered discounts to boost sales. However, other developers are unlikely to do so for some projects as they have “limited room to adjust their prices due to the high land prices they have committed to, earlier on,” said Tan.

Moving forward, developers may build smaller units, which will enable them to offer affordable prices while keeping their profit margins.


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