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executive condominium houses

3 new tweaks to the Executive Condominium Scheme

In January 2013, MAS revised the Mortgage Servicing Ratio (MSR) to be capped at 30% of a borrower’s gross monthly income for loans granted by financial institutions for the purchase of HDB flats.

 

In June 2013, MAS introduced the Total Debt Servicing Ratio (TDSR) framework. The new frame work serve to cap a borrower’s total repayment liability to be not more than 60% of his monthly gross income. Hence assuming if a borrower draws an income of $10,000 a month, his total monthly debt commitments/repayments should not exceed more than $6,000 a month.

 

Since the introduction of MSR and TDSR, home buyers have skewed towards buying executive condominiums. Recent data have shown an increase in sales transactions, with developers selling 1240 executive condo units in Q3 2013 as compared to 932 units in Q2 2013, representing a substantial increase of about ~33% over the previous quarter.

 

Just as demand for executive condos seems to be ballooning, the Ministry of National Development yesterday announced 3 new tweaks to the executive condominium scheme.

 

1) Mortgage Servicing Ratio for Executive Condos

Effective today 10 Dec 2013, for EC units bought directly from developers, applicants getting a loan from financial institutions will have its mortgage servicing ratio capped at 30% of their gross monthly income.

 

The Total Debt Servicing Ratio (TDSR) framework was previously used for the assessment of an applicant’s EC home loan application.

 

This new measure is widely seen to affect and cool a developer’s selling price as a regular couple with the max combined ceiling income of $12,000 to qualify for an executive condo unit would only be able take up a max bank loan of $719,103 over a 25 years tenure.

 

Working backwards on an 80% loan to value ratio, the max purchase price the couple would be able to afford is $898,878. Buying any units above the max ceiling price of $898,878 would entail the couple forking out extra cash for the price difference.

 

In comparison to the TDSR framework, a couple with the max ceiling income of $12,000 with zero liabilities would qualify for a max bank loan of $1,603,403 over a 30 years tenure. The max purchase price of the flat the couple would be able to afford on an 80% loan to value ratio would be $2,004,253.

 

The new MSR framework for executive condominium would effectively curb bank lending and reduced the maximum amount of loan a bank or financial institution can grant to a couple by over 55% (assuming max income of $12,000 with zero liabilities).

 

2) Introduction of the HDB Resale Levy to the Executive Condominium Scheme

Under the HDB resale levy scheme, home owners who have previously bought a flat from the HDB or have taken up a CPF housing grant will have to pay a resale levy of between $15,000 to $50,000 when they buy the next HDB flat.

 

The purpose of the resale levy is meant to reduce the amount of subsidy a couple enjoy on their second subsidized flat to maintain a fair allocation of the public housing subsidies between first and second timers.

 

For more information relating to the resale levy, you may refer to http://www.hdb.gov.sg/fi10/fi10322p.nsf/w/SellFlatResalelevy?OpenDocument

 

3) Reduction in cancellation fee from 20% to 5% of the purchase price

Effective to home buyers for land sale projects taking place since yesterday 9 Dec 2013, the cancellation fee for EC buyers will be reduced from 20% of the purchase price to 5%.

 

This is consistent to the cancellation penalty applicable for HDB Build-To-Order (BTO) flats. Home buyers will now pay 15% lesser cancellation fee charge in the unfortunate event that they do not proceed with the EC purchase.

 

In summary, the new MSR limit will capped the amount of financing home buyers would be able to secure while the new applicable levy add as some form of additional buying "taxes" onto the executive condominium segment.

 

Analysts expect developers to come out with smaller units but with most EC buyers being family upgraders with kids, would they bite for a smaller home?

 

We have MSR in January for HDB, TDSR in June for private residential, commercial & industrial and it looks like the executive condominium will have its share of the cake just in time for Christmas.

 

Merry Christmas!

 

Related Links:

+ http://www.mortgagesupermart.com.sg/blog/18-q3-2013-singapore-real-estate-statistics-mortgage-supermart-singapore-1

+ http://www.mortgagesupermart.com.sg/blog/15-q2-2013-singapore-real-estate-statistics-mortgage-supermart-singapore

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Latest Release of URA Real Estate Statistics for Q3 2013 - Private Residential Properties

Singapore Residential Hdb flat

Private Residential Properties - Prices and Rental

There is a slowdown of price increases in private residential properties in Q3 2013 as compared to the previous quarter. Prices rose 0.4% in the third quarter as compared to a 1.0% increase recorded in second quarter.

Rentals of private residential properties rose by 0.2% in Q3 2013 as compared to a 0.3% increase in Q2 2013.

 

Private Residential Properties - New Show flat Launches

Developers launched 3,313 uncompleted private residential units (excluding ECs) for sale in Q3 2013 which is about 25% lesser than the 4395 units launched in Q2 2013.

Developers sold only 2430 units in Q3 2013 which is about 46% lesser than the 4538 units sold in Q2 2013. There were 1387 new executive condo units launched in Q3 2013, about 29.5% more than the 1071 units launched in Q2 2013.

Buyers seems to have run favour with EC units which saw an increase of sales from 932 executive condo units in Q2 2013 to 1240 executive condo units in Q3 2013. This represents an increase of about 33% increase in sales.

 

Private Residential Properties - Resale and Sub-sale and total transactions

Private residential resale transactions saw a substantial drop in sales volume, decreasing from 2075 units in Q2 2013 to only 1340 units in Q3 2013. This represents a drop of about 35% or 735 units. Sub sales represented for about 4.6% of sales transactions in Q3 2013 vs 4.8% in Q2 2013.

Total transactions, including completed, uncompleted, sub sale and resale units fell from 6945 in Q2 2013 to 3951 in Q3 2013, representing a decrease of 2994 units or 43% in the total number of units sold.

 

Private Residential Properties - New supply of residential units in the pipeline

As of Q3 2013, there was a total supply of 84,917 uncompleted private residential units in the supply pipeline. This is slightly lower than the 87,789 units in Q2 2013. 31,004 units remained unsold.

An additional supply of 12,436 new uncompleted executive condo units is expected in the supply pipeline, bringing the total number of uncompleted private residential and executive condo units in the supply pipeline to 97,353 (84,917+12,436).

10,025 new units are expected to be added to the supply pipeline from Government Land Sales. These units are expected to be completed in ~2017.

About 6,711 private residential and executive condo units are expected to be completed by the end of 2013. 21,263 private residential and executive condo units are expected to be completed in 2014.

 

Private Residential Properties - Stock and Vacancy of Completed Private Residential units

Stocks of available completed private residential units rose 1.2%, rising to 286,006 units in Q3 2013 from 282,528 in Q2 2013. This represents an addition of 3478 vacancy units as compared to the previous quarter.

Vacancy rate of the available units also saw an increase of 0.5% to 6.1% in Q3 2013 from 5.6% in Q2 2013.

 

Latest Release of URA Real Estate Statistics Q3 2013 - Commercial and Industrial Properties

commercial shopping centre

Office Spaces - Prices and Rental

Prices of office spaces increased by 1% in Q3 2013 vs a 1.5% increase in Q2 2013. Rentals rose 0.8% in Q3 2013 vs an increase of 0.2% increase in Q2 2013.

 

Office Spaces - New Supply in the pipeline

At the end of 3rd Quarter 2013, there was a total supply of about 1.086 million sq m GFA of office space in the pipeline.

 

Office Spaces - Stock and Vacancy

Occupancy of office spaces rose by 46,000 sq m (nett) in Q3 2013 as compared to the 19,000 sq m (nett) increase in Q2 2013. This represents an increase of more than 240% in the occupancy rate as compared to the previous quarter.

The stock of office space rose by 122,000 sq m (nett) in Q3 2013 as compared to a decrease of 18,000 sq m (nett) in Q2 2013. The rose in occupancy space by 27,000 sq m (nett) is being offset by the addition of 122,000 sq m (net) in the supply stock of office spaces. As a result of this, island-wide vacancy rate of office space rose marginally to 9.6% in Q3 2013 from 8.8% in Q2 2013.

 

Shop Spaces - Prices and Rental

Price index of commercial shop spaces rose from 128.0 in Q2 2013 to 128.5 in Q3 2013. This represents a 0.4% price increases in Q3 2013 as compared to a 1.7% increase in Q2 2013.

 

Shop Spaces – New supply in the pipeline

At the end of Q3 2013, supply pipeline for planned development shop space amounted to 128,000 sq m as compared to 153,000 sq m in Q2 2013, representing a drop of 16.3% in new supply pipelines for planned developments.

Supply in the pipeline for under construction shop spaces rose from 445,000 sq m in Q2 2013 to 486,000 sq m in Q3 2013. This represents a 9.2% increase over the previous quarter. At the end of Q3 2013, the total supply pipeline of shop spaces amounted to about 614,000 sq m.

 

Shop Spaces - Stock and Vacancy

There is an increase in demand for shop spaces as Q3 saw the amount of occupied shop spaces rose by 5000 sq m while the stock for shop spaces only increased by 2000 sq m. As a result, island-wide vacancy rate of shop space fell marginally to 5.7% as at the end of Q3 2013, from 5.8% in Q2 2013.

 

Industrial Spaces – Prices and Rental

Both prices and rentals of multiple-user factory space continued to climb in Q3 2013. Prices of factory spaces saw an increase of 0.9% in Q3 2013 as compared to 0.5% in Q2 2013 while rentals rose 4.4% in Q3 2013 as compared to only a 0.1% increase in Q2 2013.

 

Industrial Spaces – New supply in the pipeline

Supply in the pipeline for planned development for factory spaces rose 81,000 sq m to 1,024,000 sq m in Q3 2013 as compared to 943,000 in Q2 2013. This represents an increase of about 8.6%.

Supply in the pipeline for under construction units saw a drop of 95,000 sq m from 3,493,000 in Q2 2013 to 3,398,000 in Q3 2013. This represents a drop of about 2.7%.

 

Industrial Spaces – Stock and Vacancy

The demand for factory space rose sharply by 73% from 139,000 sq m in Q2 2013 to 241,000 sq m in Q3 2013 but is offset by the new stock of factory spaces of about 206,000 sq m in Q3 2013.

As a result, the vacancy rate for factory spaces remains stable with only a marginal drop of 0.1% to 7.5% in Q3 2013 as compared to 7.6% in Q2 2013.

 

Related links:

+ http://www.mortgagesupermart.com.sg/blog/15-q2-2013-singapore-real-estate-statistics-mortgage-supermart-singapore

+ http://www.mortgagesupermart.com.sg/blog/7-q1-2013-singapore-real-estate-statistics-mortgage-supermart-singapore

 

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mas cooling measures 2013Effective 29 June 2013, MAS have introduced a Total Debt Servicing Ratio (TDSR) framework to ensure consistency in credit underwriting for property loans granted by financial institutions to individuals. The individual is inclusive of sole proprietorships and investment vehicles set up by an individual solely to purchase property.

 

The new framework will require all financial institutions to take into account borrowers’ other outstanding debt obligations when granting a mortgage. This framework is meant to strengthen financial prudence among borrowers.

 

The new framework will also refine rules to patch up “loopholes” relating to the application of existing Loan to Value (LTV) limits that were introduced on 12 Jan 2013 to limit the financing quantum that financial institutions may grant to borrowers. These refinements seek to ensure the effectiveness of the applicable LTV limits were enforced diligently to cool investment demand in the Singapore property market.

 

Under the new framework, financial institutions will be required to compute the TDSR or the percentage of total monthly debt obligations to gross monthly income on a consistent basis of not exceeding 60% in debt servicing ratio, applied with a medium term interest rate or the prevailing market interest rate, whichever is higher, to the property loan that the borrower is applying for when computing the TDSR. The standardise medium term interest rate under the new framework is set at 3.5% for residential housing loans and 4.5% for non–residential property loans.

 

Other measures include a standardise 30% haircut to all variable income (e.g bonus) and rental yield and applying haircuts to any eligible financial assets taken into consideration in assessing the borrower’s debt servicing ability when converting them into income streams for computing the debt servicing ratio (DSR).

 

Measures meant to patch up existing “loopholes” on applicable LTV limits include:

  • Having all borrowers named on a property loan to be mortgagors of the residential property.
  • Guarantors who are standing guarantee for home borrowers are to be brought in as co-borrowers instead.
  • For joint borrowers, the financial institutions would use the income-weighted average age of borrowers when applying the rules on loan tenure. The income-weighted average age will be based on the borrowers’ gross monthly income. Lower LTV limits apply to a loan granted for the purchase of a residential property, where the loan period extends beyond the retirement age of 65 years or the tenure exceeds 30 years.

The overall introductions of the new framework are structural in nature for the long term. These are aimed at encouraging prudent financial borrowing by home owners and to standardise and strengthen credit underwriting standards used by all financial institutions. Analysts expect the new cooling measures to be subdued while developers and property agents have reported seeing similar crowds at showflat over the weekend today and yesterday. Personally, we see this more of a windows 7.1 patch than a new launch of Windows 8.

 


 

Appendix 1 - Second Quarter 1/7/2013 URA Private Residential Property Price Index

Q2 Private Residential Property Price Index

Appendix 2 - Second Quarter 1/7/2013 URA Non-Landed Private Residential Property Price Index

Q2 Property Price Index of Non-Landed Private Residential Property

Appendix 3 - Second Quarter 1/7/2013 HDB Resale Price Index

HDB Resale price index 2013

 

 

Related Links:

+ http://www.mortgagesupermart.com.sg/resources/mas-property-cooling-measures

+ http://www.mortgagesupermart.com.sg/resources/mas-new-measures-to-cap-loan-tenure

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