Is the Total Debt Servicing Ratio Weighing Down the Property Market?

By Mr. Propwise

After shrugging off the cumulative pressure of seven rounds of cooling measures, the property market finally seems to be reeling under the weight of the MAS’s Total Debt Servicing Ratio (TDSR) framework, with two major condo launches over the post-Hungry-Ghost weekend recording disappointing sales.

Over 1,100 units launched but only ~200 sold

Over 1,100 units combined were launched in the suburbs over the weekend in two projects but only around 200 were sold, which represents a low sell-through ratio. The Glades, a 726-unit condo by Keppel Land and China Vanke near Tanah Merah MRT, was reported to have sold around just 80-plus units over the weekend with asking prices ranging from $1,300 to $1,600 psf. This is slow compared to the nearby Urban Vista, which sold around 350 units over its launch weekend back in March at a similar price level, and is currently more than 80% sold.

Skywoods, a 420-unit condo project near the upcoming Hillview MRT, reportedly sold ~100 units over the weekend at around $1,300+ psf. The relatively slow sales could also be due to the higher pricing versus nearby developments such as Foresque and Eco Sanctuary.

Developers likely to be more cautious going forward

So far developers have not aggressively cut prices, with an estimated profit of around 20% over their breakeven costs. But if sales at launches continue to be tepid, developers will be forced to either cut prices on existing projects or to launch new projects more conservatively. Given the still fairly thick profit margins they are enjoying on projects, their focus could start shifting from profit to cashflow in the face of a deteriorating market.

Over the next few weeks more residential and commercial units will be launched into the market, so it remains to be seen how the market will perform and how developers in turn will react.

Loan curbs have curtailed property demand

Analysts have estimated that the TDSR has shaven off around 20% off the maximum mortgage a buyer can take due to the 3.5% interest rate assumption. Furthermore, we’ve also heard that banks are reducing the maximum mortgage quantum based on the number of credit cards the applicant has, so even if you’re not using your credit limit, you could still be penalized just for holding a credit card.

Worse still, mortgage approvals are now taking one to two weeks instead of the previous one to two days as banks require more detailed disclosures and due diligence, making buying a resale unit more perilous for buyers as the Option to Purchase is typically just fourteen days.

A stay on new cooling measures for now?

Given the initial signs of a cooling market, it is likely that no new measures will be announced in the near term. Even though the government has not officially termed the TDSR as a cooling measure, its impact seems to be more strongly felt than the previous rounds of cooling measures.

Based on flash data from the Singapore Real Estate Exchange (SRX), Cash Over Valuations (COV) for resale HDB flats fell to $18,000 from $20,000 the month before, their lowest in over four years. This weakness in the HDB resale market is likely to feed into the private property market as upgraders are unable to sell their HDB flat at a good price and switch into a private property.

Again, poor sales in two launches do not constitute a trend. We’ll have to wait and see how buyers react to the launches over the next couple of months to draw some firm conclusions. But they are certainly bad omens for the market, and as the Chinese say, calamities usually do not occur in isolation (祸不单行).

2 Replies to “Is the Total Debt Servicing Ratio Weighing Down the Property Market?”

  1. It’s really difficult to read your weekly now. The pages are overcrowded and even finding and turning from one page to another is not easy. Can’t you make your Weekly a bit more user-friendly?
    Thanks.
    James

    1. Hi James, thanks for your comment. Would you prefer if we just moved the weekly to the blog as opposed to creating a separate PDF? Also what device are you reading the weekly on?

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