New Property Measure: Limiting TDSR to 60%

Starting from today, house purchasers are hit by another major regulation restriction which may affect their options greatly. The Monetary Authority of Singapore has limited property loans to 60% of the loan applicant's Total Debt Servicing Ratio, anything property loan with the borrower's TDSR above the subscribed threshold will be rejected. In the name of being financially prudent.

To close the loophole on current property loans in which the loan tenure is pegged to the younger of the applicants, pratical changes are also made to Loan-To-Value clause. It is now a requirement for the mortgagor (loan borrower) to be the owner of property as previously, mortgage loans can be processed under a third party's name in order for the property owner to stretch the loan tenure.

So this is how it works basing on the simplest calculation, just a rough idea for you. Please don't quote me on this. For most accurate calculations please seek advice from your banker.

Assuming that I earn $3000 monthly with AWS and VB(1 month), rental revenue of $500 monthly (for rental of one room), and a car loan repayment of $800 monthly..


Annual pay
$3000 x 12 = $36,000

AWS+VB+Rental Revenue
$3000+$3000+ ($500 x 12) = $12,000

Regulated at least 30% off calculation for bonus and rental revenue
$12,000 x 0.7 = $8,400

Annual pay+AWS+VB+Rental Revenue
$36,000 + $8400 = $44,400

Total Revenue - Car Loan repayment
$44,400 - ($800 x 12) = $34,800

Annual 60% of TDSR
$34,800 x 0.6 = $20,880

Assuming you're looking at a loan tenure of 15 years..
$20,880 x 15 = $313,200

$313,200 is the amount that you can get a loan for. Or $616,400 for a 30 years loan tenure. And this is not factoring in the interest rate, so expect the amount to be even lower. Reality check.


This is a good move if you have seen enough of house repossessed by relevant authority. However, there are more implications to this move.


1. People cannot buy more expensive/better housing, ceteris paribus

While this new measure will force down the immediate demand for housing, hoping that it will induce the effects of cooling. However, it will be hard to maintain the equilibrium given all other factors remain constant.

It is good to ensure that the purchasers can truly afford the purchased property at a comfortable rate. But this will also pull down more middle class families who were aiming to purchase a higher category housing to set sight on 'more affordable' housing options, thus tilting the supply and demand of such housing options again.

With the 'reduced affordability', it is important for government to ensure that other factors like pricing, lowers to a corresponding level.


 2. The overnight regulation affects developers both ways

In this case I really sympathise the developer of Forestville EC. After being plagued by various problems since its first launch, the ec finally had an official launch yesterday with 200 over units snapped up. That was better received than its first launch with 100 over units reserved. However, with the overnight change in regulation, I speculate that there will be some units' application withdrawn due to inability to get a loan if they had not processd it by yesterday, which rarely is the case though. Bad news for this group is that their deposit will be forfeited.

On the other hand, this change in regulation had also boosted sales in other projects like J Gateway, which saw overwhelming immediate response by crowds who wanted to avoid the new regulations.


3. Rising interest rates, curbing borderline cases is beneficial

With the interest rates at market low these years, the projected increase will hit hard on property loan holders. The fluctuating SIBOR rate is actually the main consideration. Thus ensuring that TDSR is less than 60% is really a way to prevent bigger crisis.


All in all, don't worry. If you can't meet the TDSR of 60% and below, you still have a chance by getting a guarantor as your co-borrower. Not to mention, the loan application will also be assessed with income-weighted average age for joint borrowers. If everything fails, maybe you'll want to lower your options. Speaking from experience, if you want to know more about the flow of purchase, I'm here. Kudos.

For more please visit MAS website: http://www.mas.gov.sg/news-and-publications/press-releases/2013/mas-introduces-debt-servicing-framework-for-property-loans.aspx

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