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Loan curbs make homes 30% less affordable: Citi
S'pore households register a sharp spike in debt levels, led by mortgages
By: Siow Li Sen
THE latest measures to ensure prudent borrowing have made residential properties less affordable for investors, said Citi in a recent report.
Someone making a second purchase will only be able to afford a property that is 30 per cent cheaper than was possible before the new rules kicked in, it reckons.
To moderate debt levels, banks now have to take into account borrowers' other outstanding debt obligations when granting a property loan such that the total debt servicing ratio (TDSR) does not exceed 60 per cent, based on the higher of the prevailing market interest rate or 3.5 per cent for residential properties (4.5 per cent for non-residential).
Singapore households have registered a sharp spike in debt levels, led by mortgages, Citi said. "Household debt relative to GDP has risen to about 77 per cent, similar to levels recorded before the Asian financial crisis nearly two decades ago," said the report.
The largest increase in household debt levels has come from mortgages with financial institutions (FIs), with FI mortgages accounting for 60 per cent of total household liabilities versus 51 per cent in Q12010, it said.
"As interest rates have been extremely low in the past few years, affordability (defined as household income, excluding employer CPF contribution) for the 75th-85th percentile ($13,500 per month for 2012), and assuming median price for condominium located outside central region ($1.04m for 2012), financed with 80 per cent loan-to-value, has been strong for households since 2009, supported by strong income growth and falling mortgage rates," said Citi.
According to Citi's calculations, under the new TDSR, someone in the 71st-80th percentile income buying a second property can now afford one with a maximum value of $1.96 million, down 32 per cent from $2.88 million before the measures kicked in.