Property Cooling

Property Cooling: Rising treasury yields over the past month may have prompted MAS’ decision to encourage more prudence on housing leverage which takes effect 29 Jun 2013. More could follow depending on the level of success. MAS introduced a Total Debt Servicing Ratio (TDSR) cap at 60% of monthly income. Financial institutions must now consider all of a borrower’s outstanding debt obligations, i.e in addition to property-related loans, other debt repayments pertaining to cars, renovations and credit card loans must be factored into a borrower’s debt profile. The ratio will be monitored and reviewed over time with a view of further encouraging financial prudence. Calculations will now be based on a medium term interest rate, which is explicitly stated at 3.5% for housing and 4.5% for non-housing loans. Morgan Stanley estimates this results in borrowers having access to a 20% lower loan quantum on the same income. This could curb demand from the marginal property buyer who has to now look at a 20% cheaper apt or fork out 20% more cash on the down payment. In response to the rising number of cases of buyers circumventing LTV and ABSD rules (eg. parents buying under children’s names), borrowers named on a property loan are now required to be mortgagors of the property. Guarantors not meeting the TDSR threshold are also required to be brought in as co-borrowers, so an income-weighted average age of borrowers will used when applying the rules on loan tenure. Following previous cooling measures, property stocks have typically fallen 4-7% in the first few days then stabilized. Morgan Stanley believes City Devt, the default proxy to the residential market, is most at risk as 35% of GAV comes from Singapore residential. This compares with Keppel Land’s 16% and CapitaLand’s 8%. Credit Suisse agrees this “mini-measure” could hit market sentiment, prefers developers with more overseas exposure such as CMA, CapitaLand, GLP. UOBK however believes the TDSR measures were largely expected. Says the knee-jerk correction in developers share prices may present buying opportunities. Prefers selective diversified developers, with top picks CapitaLand, Ho Bee, OUE.