TDSR not the only factor influencing home prices

I am a big fan of Mr Sam Baker’s articles as I find he brings a fresh and data-driven approach to the property market discussion. That said, I beg to disagree with the conclusions drawn in his latest commentary “TDSR running out of steam?” (Nov 21).

They give too much weight to the technical analysis of price trends and do not even acknowledge the fundamental factors driving price trends in the market.

The recent consolidation is not exactly unexpected in that markets do not move up or down in a straight line. The Total Debt Servicing Ratio (TDSR)is a big factor in price movement, but is not the only factor.

Hence, even if there were no other government measures, I think there are four fundamental factors that would cause prices to continue their downward trend after the period of consolidation we are seeing now.

The first is a continued downward pressure on rentals. Vacancies have increased from 14,000 units in 2012 to 17,000 last year and to 21,000 this year.

This is likely to rise as the Government continues to limit foreigner intake and as we see record newly completed condominiums over the next three years.

Second, the prices of resale flats have remained depressed because of cheaper new flats as well as the TDSR and Mortgage Servicing Ratio (MSR) measures. This limits the liquidity of HDB upgraders.

Third, executive condominium prices have remained depressed, which is likely to limit price increases of surrounding condos, albeit to a limited degree. Fourth, the interest rate increases that are expected from the end of next year to early 2016.

We are starting to see concrete signs of market stress. Developers are beginning to post large discounts, which should increase when more developments need to have all the units sold within two years of obtaining the temporary occupation permit.

The number of mortgage sales at auctions is increasing exponentially, owners are increasingly willing to sell at a, sometimes substantial, loss and arbitrages are popping up all over the island, not only in Sentosa.

Given the above, I think it is simplistic to say the only way to make prices fall further is to raise supply.