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Subscribe to this list via RSS Blog posts tagged in cooling measures

June 2013 was when the Total Debt Servicing Ratio (TDSR) was being introduced. Since then, between July to December last year, mass market private homes saw take-up rates plunge to its lowest level.

Ong Teck Hui, Research Director at Jones Lang LaSalle Singapore concluded that after TDSR was imposed in June 2013, sales of most projects launched had slowed down, unlike previously where realistic priced projects were able to achieve substantial take-up within a reasonable time frame. He noted that buyers were more attracted to purchase projects that had reduced prices than optimistically priced projects; and revealed that due to poor market sentiment, developers had shy-ed away from launching new projects. Therefore there were only 2,796 suburban private homes launched which was more than 50% less than the 6,309 units launched in first half of 2013. Likewise in the outskirts, new home sales fell precipitously -- a drop of 64% in the second half of 2013.

On September 9, 2013, it was stated that the Total Debt Servicing Ratio (TDSR) had began to bite and developers are lowering the launch prices of new projects.

Concurrently, the matter was noted by Liam Wee Sin, President (property) at UOL, that they could have priced their project at S$1,500 per-square-feet (psf) at the very least but due to TDSR, they were tasked to price it at a more realistic level, at S$1,350-S1,400 psf. TA Corporation’s Group CEO Neo Tiam Boon siad he was looking at nearly S$1,300 psf on average pre-TDSR but instead released it at S$1,250 psf. It was commented that the issues were not on the buyers but was due to the ability to secure a bank loan.

In April this year, it was recorded that new home sales was 55% higher than in March but still well below pre-TDSR levels; stating that realistic prices are crucial in moving sales. Following JLL’s perspective on private residential units sold by developers, it seemed that developers remained cautious in launching units for sale, resulting in only 586 new units being placed on the market and 745 private homes being sold by developers in April.

July 26, 2014 - Private home prices continued to slip. According to the Urban Redevelopment Authority (URA), the prices of private homes had fallen by one percent in the second quarter of 2014, following the 1.3 percent decline in the previous quarter; and it was observed that across all segments of the private residential property market, prices were declining. 

    Prices of non-landed properties in the Core Central Region (CCR) declined by 1.5 percent, following the 1.1 percent decrease in the previous quarter

    The Rest of Central Region (RCR) recorded a decline by 0.4 percent, after decreasing by 3.3 percent in the previous quarter

    In Outside Central Region (OCR), prices declined by 0.9 percent, significantly more than the 0.1 percent decline in the previous quarter

    Prices of landed properties declined by 1.7 percent, significantly more than the decrease of 0.7 percent in the previous quarter

The steady recession of the private property price index and the number of units sold by developers had shown that the residential market has adjusted to the effects of the TDSR, reported in a statement by JLL. With the prices progressively ameliorating, that was the balanced outcome expected as transactions moderated significantly from pre-TDSR levels.

In Aug 2014, it was reported by DTZ that a weak housing outlook and the possibility of further reduction in price would hamper sales volumes in the private housing market, especially for resale homes. It was highlighted in the report that buying interest was kept down due to various reasons which include the government’s reluctance to relax the property cooling measures, buyers' continuation in adopting a wait-and-see approach and rosier investment opportunities abroad.

Although there were units realistically priced within the secondary market, some sellers were still dawdling for market circumstances to be more desirable. Positively, it was expected that demand for new homes will hold up better as developers were able to strategically and creatively promote their projects to attract buyers.

The report further stated that given the results from the past quarter, projects with good location and were priced affordably would achieve reasonable interest. However, due to the limited number of buyers and financing concerns, sales rates were not expected to hit pre-TDSR levels. Thus, selected new projects were launched in phases to test market reaction as developers remained cautious and might slash prices to move units.

It was predicted by DTZ that there would be a severe decline in the number of units in the whole of 2014, as compared to the previous two years; total transaction volumes this year would also fall far short of the annual average recorded in the past five years. Also, assuming that the economic environment remained the same, transaction volume is likely to be comparable to the levels seen in the pre-GFC period, which was viewed as a healthy correction for the residential market.

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The MAS, working with other government agencies, has introduced several rounds of measures to cool an overheated property market. However, it assessed that it is premature to ease property cooling measures now. They believe that it is important to secure the gains that are made in stabilizing the market and restoring financial prudence.

On July 21, National Development Minister Khaw Boon Wan told Parliament that Singaporean home-buyers, especially those with the eagerness to upgrade will not welcome the results of the measure. He stated that such move would lead to an improvement in demand, which would increase the number of transactions and raise housing prices.

On July 24, the Monetary Authority of Singapore (MAS) related verbally and on paper that even if the property market may be stabilizing currently due to the cooling measures taking their effect, it is still "too early" to relax those measures since property prices remain high.

Concurrently, MAS Managing Director Ravi Menon, in regards to unwinding cyclical measure at the MAS annual report 2013/2014 press conference, reported that it is too early to relax as risk factors remained. He mentioned that while housing prices have moderated, they have remained at elevated levels. In the previous four years, property prices had risen 60% but have declined by a mere 3.3% during the last three quarters. Mr Menon further added that if property measures are relaxed at a time of low global interest rates, it may set off another spiral of price increases.

It was stated by MAS that household balance sheets are in better shape - that the property cooling measures have helped strengthen overall household balance sheets - household debt growth has been tempered. For example, year-on-year growth of household debt has moderated to nearly 13% in the third quarter of 2011 from the same quarter of 2010 and to 5.5% in the first quarter of 2014. Mr Menon remarked that this comes amid a considerably brighter economic outlook, with a modest pickup expected in the second half.

The level of debt among highly leveraged households, which takes time to reduce, remains high, thus there is a need for them to work with their banks and commit to debt repayment plans, he added. The cooling measures introduced are divided into two categories – structural measures such as the total debt servicing ratio which are meant for the long term, and cyclical measures such as loan-to-valuation limits and stamp duties that can be "re-calibrated according to market conditions".

"The prices are just beginning to soften,” said Mr Menon. With high level of prices, low interest rates and high debt levels for the highly leveraged households, he said that it would take time to adjust, and required close monitoring over supply and demand conditions, credit and liquidity environment and a variety of other factors. Furthermore, he stated that the objective is to have an orderly correction and stabilization of the market and not just to see a collapse in prices.

Similar to China, which had introduced numerous measures that include credit curbs and restrictions on buying more than one home, Singapore is worried that inflation may increase as a result of a potential property bubble destabilizing the financial industry; thus, a series of property-market curbs was implemented since 2009. However, it was reported by analysts that measures had slowed housing demand beside increasing processing times for home loans.

Currently, MAS expects inflation to grow at a pace of between 1.5 percent and 2.0 percent, compared to an earlier forecast of a 1.5 percent to 2.5 percent increase. Mr Menon attributed the decline in overall inflation to moderating car and property prices.

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