Tuesday, 2 July 2013

Round 8 - TDSR framework

My last post on Round 7 was on 13 Jan 2013. The post is here.

Frankly i am not sure if the recently introduced total debt servicing ratio ("TDSR") can be considered as Round 8. It sounds more like making sure all the banks are operating from the same set of guidelines to rein in both the "cowboy" bankers and the "cowboy" speculators. 

The initial TDSR ratio is set at 60%. In other words, the ratio of total monthly debt obligations divided by gross monthly income must be less than 0.6.

One interesting TDSR calculation is that the "medium term interest rate" assumption of 3.5% for housing loans and 4.5% for non-housing loan. This is way above the current SIBOR and perhaps it is a signal to property buyers that the low interest rate environment is not going to last forever. 

In addition, the computation also includes a 30% haircut for variable income such as bonus and rental. 

Currently the views from the analysts are mixed with respect to the impact from Round 8. Daiwa is one of the more bearish, forecasting a decline of 18-20% from end of 2012 to end of 2015.

I have shared with you my property journey. The post is here. Let's take a quick look at the current market and see where we are as of Q1. (Q2 chart will be out later part of July)



The property market here continues to be resilient despite Rounds 1 to 7 cooling measures. haha.. It will be tough to "douse" the fire with Round 8. You can see it in J Gateway sold out in one day. I am thinking Round 8 will probably not be the last round but other than an outright ban on Singaporeans buying their 2nd or 3rd properties, can you think of any more cooling measure that will be effective ? Perhaps forcing multiple home owners to sell their 2nd or 3rd properties will bring down the prices but Hong Lim Park will probably be full of people protesting everyday till the next election. :-P

You need a few things to happen to bring down the prices sharply:
1. A significant stock market crash
2. Another financial crisis (where fear strikes) as in 2008-2009.
3. A rise in interest rate 
4. A big retrenchment in Singapore companies and expats leaving Singapore in droves

Do you foresee any of the above coming soon? 

7 comments:

contrarian said...

What can be more effective? Cut loan tenures. Come down from 30 to 20 over time.

financialray said...

I can foresee interest rates rising

Anonymous said...



[[ anonymous 7 ]]

contrarian said...

What can be more effective? Cut loan tenures. Come down from 30 to 20 over time.

=====


But what if the above leads to buyers "rushing" to buy?

after all, they know they can get 30 year loans now.

Next year, they get 29 year loans.

The year after, they get 28 year loans.

So, would these buyers then "rush" to buy now? This would be logical.

And if they rush to buy now, what would the effect be?

===============

Perhaps the real issue is if buyers do not think they have a one-way bet on the market.

Then I see some have been calling on the government to "ensure/maintain the value of their property".

(huh? what are they talking about?)





Anonymous said...




You need a few things to happen to bring down the prices sharply:
1. A significant stock market crash
2. Another financial crisis (where fear strikes) as in 2008-2009.
3. A rise in interest rate
4. A big retrenchment in Singapore companies and expats leaving Singapore in droves



======================


into which of the above categories does the following article fit?





Published August 31, 2013


Bank lending breaches psychological barrier

Loans-to-deposits ratio crosses 100% mark despite slower lending; analysts preach prudence as leverage concerns grow




By

Kelly Tay kellytay@sph.com.sg



Singapore

THE banking sector's loans-to-deposits ratio crossed 100 for the first time since the Asian financial crisis, providing evidence that the Monetary Authority of Singapore's (MAS's) recent moves to curb excessive lending were timely, say economists.

Bank lending in July continued to slow from a year ago for a third consecutive month, dragged down by slower growth in consumer loans. According to preliminary figures released by the MAS yesterday, domestic banking unit (DBU) loans rose 17.6 per cent to $539 billion in July year-on-year, down slightly from June's 17.7 per cent growth.

But what caught the industry's eye was the fact that the sector's loans-to-deposits ratio breached the 100 per cent threshold - marking the first time since September 1995 that this has occurred.



Subscribers, log in here to read the full story. If you do not have an account, subscribe here.

Anonymous said...

Empty vessels make most noise!

This quote is specially for "Anonymous 7".

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