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Subscribe to this list via RSS Blog posts tagged in Total Debt Servicing Ratio framework

It should have come as no surprise that on the first anniversary of the most significant measures aimed at underpinning principles of prudent borrowing and lending, a fresh call should come from the property industry for a review of measures that have left the market here listless and lacklustre.

The Total Debt Servicing Ratio framework, which took effect on June 29 last year, was not articulated nor specifically designed as a property cooling measure but was billed as a means of ensuring that borrowers do not overstretch themselves and accumulate too much debt.

It has nevertheless been in the property market where the measure's reach and impact have been felt most significantly. Its stipulation that banks must factor in a borrower's total debt obligations before a new property loan can be granted - coupled with other new measures such as additional stamp duties - had multiple hits: on market sentiment, transaction volumes and prices.

It is perhaps fair, one year on, to ask for a reassessment of the usefulness and validity of the cooling measures. Industry veteran Kwek Leng Beng's argument is that Singapore could lose its edge as an investment destination as foreigners opt instead for property markets elsewhere. Property players assert that speculators have been weeded out, prices have dipped and a cooler, more stable market has been established. There is also the fear of a systemic downward spiral.

But the reality is that underlying concerns remain, including whether prices are currently at levels which home buyers believe are realistic and, importantly, affordable. Given that private home prices surged 60 per cent during the most recent market upswing that began in mid-2009, the decline in prices since the introduction of the cooling curbs is anything but significant. This, in part, underpins the conviction of the authorities that it is too early to consider a rollback of the measures.

Many buyers remain on the sidelines in the hope of a more substantial price correction. Developers are clearly not unaware of how to respond to a buyers market. They have recognised, for instance, that they can move existing stock at discounted re-launches, especially if their new units are reasonably priced.

Hard as the year of cooling measures might have been on certain groups of people, the steps must be viewed, however, for what they have forced on those making financial decisions about property. It has provided the time and space for all to pause and take stock of their expectations, recalibrate their finances, and weigh the outlays required for what is, without doubt, the single most significant physical asset and stake that they will have in the country - and the responsibilities that go with it.

Such determinations are more likely to be sound in a calm, unfrenzied and stable market. If the cooling measures have and continue to enable people to make such important decisions pragmatically, they have a value which must be acknowledged. Market stability, which is a boon to developers and individuals alike, is better achieved when market behaviour, too, can be characterised as both sober and stable.

 

Taken from The Straits Times via ST Property

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