Tag Archives: loan-to-value

Home prices would have risen by a third without cooling measures

If the Singapore government had not introduced a series of cooling measures to control the growth of private home prices following the 2008 Global Financial Crisis, such properties would have been more expensive than the current norm by up to a third, revealed a study conducted by the Monetary Authority of Singapore (MAS), and reported by TODAYonline.

Similarly, the number of private housing deals and the volume of mortgages in the city-state would have risen by a similar level, added the MAS.

The central bank also discovered that tax measures, like the Seller’s Stamp Duty (SSD) and the Additional Buyer’s Stamp Duty (ABSD), had a more significant effect on prices and transaction levels as compared to land supply policies and lending curbs like the loan-to-value (LTV) ceiling and Total Debt Servicing Ratio (TDSR) framework.

“The SSD reduced sub-sales significantly, whereas the ABSD raised the hurdle rate of return for property investors.”

This has led to an exodus of foreign property buyers. In Q4 2011, the share of private residential purchases by this group peaked at nearly 20 percent, but it plummeted after the ABSD was implemented.

As a result, weaker buying activity has dragged down property prices and mortgage lending, noted the MAS.

Meanwhile, the soft drop in home prices signals that Singapore’s housing market is moving to a more sustainable state over time, said the central bank, signifying that the authorities will likely keep the cooling measures in place.

In Q3 2015, private residential prices declined by eight percent from its peak in the third quarter of 2013.

However, MAS is still on the lookout for signs of renewed activity in the market in light of the continuing high prices in particular areas, such as those in the Outside Central Region, where it is still 30 percent above levels seen before the 2008 global economic downturn.

Advertisements

TDSR encourages prudent borrowing: MAS

There have been improvements to the risk profile of borrowers thanks to the Total Debt Servicing Ratio (TDSR) framework, according to the Monetary Authority of Singapore (MAS) in media reports.

Notably, more people are forking out a down payment of at least 30 percent, resulting in a lower debt quantum. The percentage of borrowers with a loan-to-value (LTV) ratio of more than 70 percent – or people who need a down payment of at least 30 percent – has fallen.

Wong Nai Seng, MAS Assistant Managing Director for policy, risk and surveillance, said in Q2 2010, this segment accounted for 77 percent of all housing loans taken out, but it dropped to 66 percent since 2012.

Moreover, the ratio of potentially over-leveraged borrowers has declined sharply. In 2011, the proportion of borrowers with two or more housing loans was at 30 percent, but it is now at 10 percent.

During the first 10 months of the TDSR, lending also decreased. In this period, an average of $2.3 billion mortgages was issued each month, down from $4 billion in the six months prior to its implementation.

“The TDSR is meant as a structural measure for the long term. It aims to strengthen underwriting standards of lenders and also to encourage financial prudence among borrowers and does that by matching the size of the loan to the borrowers’ payment (capacity) so they don’t take on too much borrowings,” said Wong.

Previous cooling measures, such as the tougher LTV rules, also played a role in improving the risk profile of borrowers.