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TDSR one year on: Unsold units at two-year high

SINGAPORE — After multiple rounds of cooling measures since 2009 aimed at reining in the housing market, it was a loan curb called the Total Debt Servicing Ratio (TDSR) framework that appears to have been the most effective in slowing down runaway private home prices and transaction volumes.

SINGAPORE — After multiple rounds of cooling measures since 2009 aimed at reining in the housing market, it was a loan curb called the Total Debt Servicing Ratio (TDSR) framework that appears to have been the most effective in slowing down runaway private home prices and transaction volumes.

The impact of the TDSR was immediate after it came into effect on June 29 last year. New private home sales tumbled 73 per cent to only 482 units the following month and they have not recovered to the level before the curb was introduced, data from the Urban Redevelopment Authority (URA) showed.

Prices climbed at a slower pace before finally declining in the last three months of last year for the first time in almost two years. With several developers slashing prices to boost sales, the number of new private homes sold last month nearly doubled to 1,470 units, the highest level since the TDSR was implemented, suggesting that the pricing strategy worked.

But while the 1,790 units that were newly offered to the market last month contributed to the higher take-up, they also brought the unsold inventory up to a two-year high of 7,266 units, the URA data showed. Compared with May last year, this represents a 31.6 per cent increase.

Mr Alan Tan, head of Singapore projects at property agency HSR, said: “The pressure is on the developers. Given the timeline they have to sell off everything, some may adopt escape strategies by either lowering expectations of revenues or aiming to break even.”

Mr Chris Koh, director of property firm Chris International, said: “Since June last year when the TDSR was introduced, we’ve seen the market being affected quarter by quarter … If the unsold inventory picks up, there will be more price pressure because developers may have to offer more discounts to clear their remaining units.”

This is especially so with the TDSR framework affecting affordability and causing sales to shift to smaller homes with lower overall quantums.

Under the framework, the total debt obligations of the mortgagor cannot exceed 60 per cent of his gross income, new loan repayments are calculated based on a medium-term interest rate of 3.5 per cent or the prevailing rate if the latter is higher and guarantors will be brought in as co-borrowers if borrowers cannot meet the TDSR threshold.

The framework hit the market harder than cooling measures such as the tighter loan-to-value limits and additional stamp duties.

“Many cooling measures are in the form of stamp duties and applicable only in certain situations — for example, when selling the property. But about 90 per cent of properties are purchased with a loan, so the moment the Government starts to tighten loans, that’s when the problem starts, because many people are not able to buy,” Mr Koh said.

With TDSR here to stay for the long term, the clock is ticking for developers who are approaching the five-year mark to sell the remaining units in their projects to avoid paying the Additional Buyer’s Stamp Duty. Those with foreign holdings also have to comply with Qualifying Certificate rules, which require developers to sell the units within two years after obtaining the Temporary Occupation Permits.

The good news is that there is appetite in the market that can be translated into sales at the right pricing points, as the TDSR and cooling measures ensure prices remain affordable.

“Imagine the price escalation we would be experiencing today if there were no measures in place … The aim of the cooling measures was to slow down the pace of sales to a comfortable level and keep home prices affordable to lower-to-middle-income home buyers. What we are seeing now is actually a healthy market: A gradual adjustment of prices as the market stabilises,” Mr Tan said.

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