Prolonging the pain?

November 3, 2014 / By

Since the Monetary Authority of Singapore imposed the Total Debt Servicing Ratio (TDSR) in June 2013, borrowers can only use up to 60% of their monthly income for servicing both property and non-property loans. The effect of the TDSR was a significant drop in residential sale transactions after it was introduced and an eventual easing in home prices.

Quarterly price declines for private residential properties from 4Q13 to 2Q14 varied between 0.9% and 1.3% based on the Urban Redevelopment Authority’s (URA) price index. However, in 3Q14, the URA index for private homes slipped a mere 0.7%, the mildest quarterly softening since 4Q13. It was by no means a sign of the residential market bottoming out as fundamentals are still deteriorating. In 3Q14, developers only managed to sell 1,531 private homes, 43% less than the 2,665 units sold in 2Q14 and only 34% of developer sales in 2Q13, before the TDSR was imposed. The secondary market was equally lacklustre with only 1,424 units sold in 3Q14, about 41% down from pre-TDSR volumes.

Source: URA Realis, JLL
*PPI refers to the Private Residential Property Price Index from the Urban Redevelopment Authority

Developers reaped the benefits of a buoyant market from 2009 to 2013 and are generally in a good financial position, while property owners also benefited from a rising market that saw capital values appreciate 62% over a little more than four years. Economic conditions and the business environment have also been stable, so there is generally no strong pressure for developers and homeowners to sell. While some projects have discounted selling prices, most developers and home sellers are still trying to resist significant price cuts. This has the effect of moderating price declines, especially when the sales volume remains thin.

It is not difficult to understand developers holding back new sales launches – one might as well not launch a new project if the launch is going to be met with a poor buyer response that the media will highlight, generating adverse publicity. Launching new projects will also increase the number of unsold units in launched projects, exacerbating the oversupply situation in the market. While the launch of new projects is being dragged out, some developers are also hoping that, at some point, the authorities might ease the cooling measures, leading to some market recovery.

However, a slow softening in prices is more likely to protract any potential easing of the measures, as it would be more difficult for policymakers to justify easing them when prices in general are only slightly off the top. The risk of prices being artificially maintained is that they would have to correct eventually to be in line with fundamentals, so the correction later on is likely to be of greater magnitude. An impasse between buyers and sellers will slow transaction activity and impede sales progress of developers and home owners who are trying to sell. If this continues, it will be a trying time for them and a painful journey ahead for the market.


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