Loan curbs effective? Too early to tell

PHOTO: Loan curbs effective? Too early to tell

SINGAPORE - At first glance, it seems that a government move to encourage financial prudence has cooled the private property market more than January's raft of tough buying curbs did.

But experts suggest it is too early to be certain of the impact.

New private home sales plummeted a stunning 73 per cent from June to last month, after the Monetary Authority of Singapore (MAS) put a cap on borrowers' debt-to-income ratios in late June.

New home sales fell a somewhat smaller 65 per cent in February from January, following measures such as higher additional buyer's stamp duty (ABSD) and tighter loan-to-value ratios.

The dramatic effect of the total debt servicing ratio (TDSR) framework introduced in June was all the more surprising as the MAS had said it was "not targeted to address the current property cycle".

Even so, market watchers say last month's steeper-than-expected drop in demand was partly because the TDSR restrictions effectively closed the tap of easy money by limiting mortgage loans and lengthening loan approval times.

"Buyers are unable to commit to purchases as quickly as before," said Jones Lang LaSalle Singapore research director Ong Teck Hui.

In contrast, after January's cooling measures, developers could still mitigate the effect of higher ABSD by dangling discounts and rebates.

Indeed, the drop in July new home sales shows the TDSR framework - half-jokingly dubbed "Total Damage to Singapore Residential" by some industry players - does have some bite.

However, it is still too early to assess the TDSR's full impact, given that data available so far is the monthly new home sales figures for last month.

One reason is that such headline numbers often do not give the full picture.

The take-up rate for new launches tumbled from 71 per cent in June to just 23 per cent last month. The slide from January to February was markedly smaller.

However, February's take-up rate was based solely on the single project launched that month, which had only 42 units.

And while new sales in February stood at 712 units, higher than the 481 units last month, most of those 712 units were from projects such as D'Leedon and The Interlace where developers slashed prices by as much as 15 per cent after the January cooling measures.

This means that it could be unfair to use monthly take-up rates to gauge buyer sentiment.

The second reason is that monthly new sales data is primarily driven by what projects are launched that month.

But given that developers tend to hold back major launches after measures are announced to give buyers more time to adjust, the litmus test of buyer demand for new private homes may come only a few months later.

This month, for instance, The Tembusu moved more than 200 units on the day it opened for sale, largely owing to its good location near Kovan MRT station.

To assess the full impact of the TDSR framework, next month and October will be the months to watch since August new home sales will likely be dampened, owing to the traditional effects of the Hungry Ghost month.

Sale volumes are expected to rebound strongly next month and in October when new launches are back in full force, said OrangeTee research head Christine Li.

New home sales for the first half of this year, at 10,061 units, are already 16 per cent lower compared with the corresponding period last year and it remains to be seen whether that trend will continue into the second half.

Meanwhile, homes are still getting more expensive in general.

Median new sale prices rose 4.2 per cent in suburban areas and 14.4 per cent in the city centre from June to last month, though city fringe prices fell 2 per cent.

Home prices will have to ease before we can call a turning point in the property market.

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