MAS announced a set of Total Debt Servicing Ratio (TDSR) requirements whereby FIs will now account for borrowers’ other debt obligations when granting property loans. A TDSR limit of 60% will be imposed. We see an immediate impact that borrowers now cannot circumvent LTV and ABSD rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles. Over the mid-to-longer term, we see these measures further constricting financing for buyers with existing property loans. That said, the current 60% TDSR limit appears to be fairly reasonable and is not intended to cool down the property market as much as to encourage financial prudence. Maintain NEUTRAL on the domestic residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Maintain BUY on CapitaLand [BUY, FV: S$3.77], Keppel Land [BUY, FV: S$4.59] and CapitaMalls Asia [BUY, FV: S$2.55].
Looking at the total debt profile
Last Friday, MAS announced the implementation of a Total Debt Servicing Ratio (TDSR) framework whereby financial institutions will take into account borrowers’ other debt obligations when granting property loans. A TDSR limit of 60% will be imposed. For TDSR calculations, a haircut of at least 30% is applied to variable income, and eligible financial assets are amortized into income streams. A mid-term interest rate of 3.5% or the prevailing rate, whichever is higher, will also be used. In addition, guarantors for a loan are now required to be co-borrowers and purchasers of the property purchased.
Closing loopholes for previous rules
An immediate impact: borrowers with existing property loans now cannot circumvent LTV and ABSD rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles.
60% TDSR limit fairly reasonable
While the bar for upfront liquidity was already raised by previous measures targeting loan tenures and LTV ratios, we see these latest measures further constricting financing, over the mid-to-longer term, for buyers with existing property loans. That said, we see the current 60% TDSR limit to be fairly reasonable and it is apparent that they are not intended to cool down the property market as much as to encourage financial prudence in the sector.
Less impact on first-time buyers and upgraders
For first-time buyers and upgraders, these latest requirements would have less impact in terms of financing availability. Given that 12.5k out of 22k units in FY12 primary sales were attributed to buyers with a HDB address, we believe that first-time buyers/upgraders likely continues to drive core market demand, and our forecast for primary sales in the vicinity of ~16k units in FY13 remains unchanged.
Maintain NEUTRAL on sector
Maintain NEUTRAL on the domestic residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Our top developer picks are CapitaLand [BUY, FV: S$3.77], Keppel Land [BUY, FV: S$4.59]and CapitaMalls Asia [BUY, FV: S$2.55].
Last Friday, MAS announced the implementation of a Total Debt Servicing Ratio (TDSR) framework whereby financial institutions will take into account borrowers’ other debt obligations when granting property loans. A TDSR limit of 60% will be imposed. For TDSR calculations, a haircut of at least 30% is applied to variable income, and eligible financial assets are amortized into income streams. A mid-term interest rate of 3.5% or the prevailing rate, whichever is higher, will also be used. In addition, guarantors for a loan are now required to be co-borrowers and purchasers of the property purchased.
Closing loopholes for previous rules
An immediate impact: borrowers with existing property loans now cannot circumvent LTV and ABSD rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles.
60% TDSR limit fairly reasonable
While the bar for upfront liquidity was already raised by previous measures targeting loan tenures and LTV ratios, we see these latest measures further constricting financing, over the mid-to-longer term, for buyers with existing property loans. That said, we see the current 60% TDSR limit to be fairly reasonable and it is apparent that they are not intended to cool down the property market as much as to encourage financial prudence in the sector.
Less impact on first-time buyers and upgraders
For first-time buyers and upgraders, these latest requirements would have less impact in terms of financing availability. Given that 12.5k out of 22k units in FY12 primary sales were attributed to buyers with a HDB address, we believe that first-time buyers/upgraders likely continues to drive core market demand, and our forecast for primary sales in the vicinity of ~16k units in FY13 remains unchanged.
Maintain NEUTRAL on sector
Maintain NEUTRAL on the domestic residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Our top developer picks are CapitaLand [BUY, FV: S$3.77], Keppel Land [BUY, FV: S$4.59]and CapitaMalls Asia [BUY, FV: S$2.55].
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