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WITH a series of property cooling measures introducedover the past few years, the effects were felt most in theSingapore property market last year with dampeningproperty demand, followed by downward pressure onprices.

Oneof thecoolingmeasuresthathas affectedmostpeo-pleis theimplementation ofthe Total DebtServicing Ratio(TDSR) framework introduced last June. Not only areproperty buyers affected, but existing property ownersare not spared either. Those who have never heard aboutthis term find themselves trying to understand what thisratio is all about. It is this ratio that determines how muchyou can borrow from the banks, and whether you caneven buy a property at all.

The intention of the TDSR framework is to limit theamountof banklendingto financethe purchaseofproper-tiesby individuals.TDSRappliesto loans grantedin Singa-

pore by financial institutions for the purchase of all prop-erties includingHDB flats, executive condominiums (ECs),private homes and commercial properties as well as over-seas properties by individuals.

The TDSR framework puts a cap on the monthly pay-

ments on all loans undertaken by an individual to 60 percent of gross monthly income. The loans cover securedloans (property-related and car loans) as well as unse-cured loans (covering renovation, education,personal/overdraft loans and used credit card limits).

In addition to TDSR, those buying HDB flats and ECsare required to meet the Mortgage Service Ratio (MSR)cap. This sets a limit on the amount of monthly paymentmade specifically towards the housing loan only, at notmore than 30 per cent of monthly income. MSR calcula-tion was recently included as one of the requirements forECs in December 2013. Previously, ECs were only subjectto the TDSR calculation.

The two debt service ratios TDSR and MSR havegreatly limited the amount of borrowings that can be ob-tained for purchasing a property.

How have TDSR and MSR affected buyers?

Potential property buyers will now need to understandthat TDSR calculations will have an impact on the typeand size of the property they are buying. Moreover, HDBflat and EC buyers are subject to more stringent require-ments given that these loans are also required to meet theMSR calculation.

For the same loan amount, the minimum income re-quired to qualify for a housing loan for HDB flats and ECs

from financial institutions can be 50 per cent higher com-pared with a housing loan for private properties.

In addition, considering that the loan tenor for privateresidentialproperty is allowed to extend to 30 years,com-pared with the maximum loan tenor of 25 years for a

bank loan for a HDB flat assuming a borrower wants toqualify for the maximum 80 per cent loan-to-value theminimum income to achieve the same loan amount wouldbe lower by another 5 per cent for private property. Thiswould mean that the income to qualify for buying a HDBflat is 55 per cent higher than the income needed to buy aprivate property.

Let us take a look at the example of a first-time buyerwith no outstanding loan who is considering whether tobuy a resale HDB flat or a private home.

If the purchase price is $625,000, the loan amount at80 per cent of $625,000 would be $500,000.

Forthepurposeofcalculatingtheinstalment,a project-ed interest rate of 3.5 per cent is used as required underthe TDSR framework. Based on a loan of $500,000 over25 years, the monthly payment is $2,504. For a 30-yearloan, the monthly instalment works out to $2,245.

In order to qualify for the loan of $500,000, the mini-mum monthly basic income required to buy an HDB flator private property is tabulated as follows (see Table 1).

Using the same example, if the property to be pur-chasedis anEC costing$1,000,000,the minimummonth-ly income is $11,977 to qualify for an 80 per cent loan or$800,000 versus income of $5,988 if the loan is for a pri-vate property (see Table 2).

For those who are contemplating whether to buy a pri-

vate property or an HDB flat or an EC, it may seem easierto borrow to buy a private property, provided the otherfactors, like property size, have been considered.

If there are existing loan commitments, these monthlypayments are to be included in the calculation of the TD-

SR, whichwill result ina reduction inthe amount ofhous-ing loan, especially in the case for private properties. Itmay be noted that the housing loan amounts for HDB flatsand ECs may not be affected as the MSR calculation at 30per cent of income is already a more stringent ratio tomeet than TDSR even after adding on the other loan com-mitments.

Using the same example, lets add on a car loan com-mitment of $1,000 per month. The monthly income toqualify for $800,000 loan to finance the private propertyincreased from $5,988 by 27.8 per cent to $7,655. Thereis, however, no change in the income of $11,977 if theproperty under finance is an EC (see Table 3).

How have TDSR and MSR affectedexisting owners?

Theothergroupwhois affectedbyTDSRandMSR calcula-tions are existing property owners who have bought thepropertyloans before implementation of the MSRand TD-SRcalculations.Existingpropertyloansare alsosubjecttothesame calculationswhenthese loans areduefor reviewfor refinancing/repricing.

Most bank loans are structured such that interest ratesarelowin thefirsttwo tothreeyears,and therate thereaf-ter is usually much higher. Borrowers therefore resort torefinance to a more competitive loan package after threeyears of the loan term. However, borrowers who havehigh loan commitments may find it difficult to refinancedue to the TDSR and MSR requirements.

Therecent announcementonFeb 10,2014by theMon-etaryofAuthorityof Singapore (MAS),broadeningthe TD-SRthreshold of60 percent for refinancing ofowner-occu-piedpropertyloans,providessomereliefto propertyown-erswhoboughtthe propertiesbeforethe TDSRimplemen-tation date of June 29, 2013 while refinancing.

In addition, MSR will not apply to refinancing of HDBflats and ECs that are owner-occupied and purchased be-fore the implementation dates of Jan 12, 2013 for HDBflats and Dec 10, 2013 for ECs. Concessions are also givenon the loan tenor whereby owners are allowed to main-taintheremainingloantenorsforHDBflats boughtbeforeAug 28, 2013 and for ECs and private residential proper-ties bought before Oct 6, 2012 while refinancing.

For those with investment properties bought beforethe TDSR implementation date and which are affected bythe TDSR calculations, the MAS allows a transition perioduntilJune30, 2017to refinance.Theseborrowers,howev-er, must commit to a debt reduction plan with the banksas well as fulfil the banks credit assessments.

Thereare afew possibleoptionsthat borrowers canex-plore to meet the TDSR calculation:

extendthe loantenorso asto reducethe monthlyinstal-ment amountreduce the loan principle;repay other loans, eg car loans;include rental income (supported by duly stamped ten-ancy agreement with at least six months tenancy remain-ing) andpledge deposits with the bank for four years.

The writer is co-founder of www.HousingLoanSG.com,

a mortgage consultancy in Singapore

With the MSR cap in additionto TDSR, it may seem easierto borrow for a private homethan for an HDB flat or an EC,writes PATRICIAHUNG

Table 1: Minimum income required to qualify for$500,000 housing loan assuming no outstanding loan

What you need

2nd scenario

1st scenario

Source:www.HousingLoanSG.com

Minimum monthlybasic income*

Loan tenor

Monthly payment@3.5% to financethe new housingloan

$8,347

25 years

$2,504

$4,173

25 years

$2,504

$3,742

30 years

$2,245

under MSR &TDSR calculation

under TDSRcalculation

under TDSRcalculation

HDBFLAT

PRIVATEPROPERTY

PRIVATEPROPERTY

Table 2: Minimum income required to qualify for$800,000 housing loan assuming no outstanding loan

Source:www.HousingLoanSG.com

$11,977

30 years

$3,593

$5,988

30 years

$3,593

under MSR &TDSR calculation

under TDSRcalculation

EXECUTIVECONDOMINIUM

PRIVATEPROPERTY

Minimum monthlybasic income *

Loan tenor

Monthly payment@3.5% to finance thenew housing loan

Table 3: Minimum income required to qualify for$800,000 housing loan after adding on a car loaninstalment of $1,000 per month

Source:www.HousingLoanSG.com

$11,977

30 years

$3,593

$1,000

$7,655

30 years

$3,593

$1,000

under MSR &TDSR calculation

under TDSRcalculation

EXECUTIVECONDOMINIUM

PRIVATEPROPERTY

* The basic income is assumed to be fixed. If the income is variable, a30% discount is taken from its value, which will translate into lowerloan amount

Minimum monthlybasic income *

Loan tenor

Monthly payment@3.5% to finance thenew housing loan

Monthly paymentfor car loan

3rd scenario

Housing loan pointers

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