Can Singapore Safely Deflate Its Property
Market?
$350 Million Mega-Tower Planned
in Melbourne
of borrowers if mortgage
rates rise by 300 bps.
Keeping those
households from
dumping their properties
into an already slowing
property market is likely
key to keeping an even
economic keel in the
city-state.
Bugis Village, Singapore
Singapore’s famously
efficient government
faces a challenge that has
stymied many a country
before: safely guiding its
toppish property market
to a soft landing as
interest rates rise.
Property prices in the
city-state have surged
over 60 percent since
2009, propelled by rockbottom global interest
rates and quantitative
easing in developed
economies, even as
Singapore’s government
has enacted a series
of cooling measures to
prevent a bubble from
forming.
But the prospect of
rising interest rates as
the U.S. Federal Reserve
begins tapering its asset
purchases has spurred
fears that Singapore’s
property market could
be headed for a crash
as higher mortgage
payments could spur
forced selling and
defaults.
This week, Singapore
indicated the specter of
forced selling remains
a serious concern, with
the central bank, the
Monetary Authority
of Singapore (MAS),
relaxing one of its cooling
measures, the Total Debt
Servicing Ratio, or TDSR.
The measure aimed
to ensure that buyers’
monthly payments do
not exceed 60 percent of
their income, so they
wouldn’t be caught out
by a spike in interest
rates. Most mortgages
in Singapore have
adjustable, rather than
fixed, rates.
The government now
allows an exception for
borrowers who took out
their loan on their home
before the TDSR was
introduced last year and
who need to refinance as
their payments rise.
“These exemptions will
reduce the incidence
of TDSR-imposed fire
sales and lower the risk
of a property market
collapse,” David Lum, a
property analyst at Daiwa,
said in a note, adding the
exemption could prove
crucial as it will insulate
owner-occupied homes
from the pressure.
“This should help to
reduce possible systemic
risk from the TDSR, or
any blind application of
policy thresholds,” he
said, adding that the
latest steps likely indicate
the TDSR has been the
most-effective cooling
measure.
The MAS estimates
around 5-10 percent of
Singapore’s borrowers
have a monthly debtservicing burden that
exceeds 60 percent of
their income, with that
percentage potentially
rising to 10-15 percent
The consequences of
getting it wrong on efforts
to guide the property
market to a soft-landing
can be both long-lasting
and high. While much of
the U.S. housing market
has shown significant
recovery only five years
after the Global Financial
Crisis, Singapore’s
property market didn’t
fare as well in the wake
of the crash during the
Asian Financial Crisis in
the late 1990s.
It wasn’t until 2009 that
the city-state’s private
residential property
prices returned to
their 1996 peak level,
according to the
government’s property
price index data.
Others also believe
the latest steps, which
aren’t likely to affect new
sales, will help prevent a
meltdown.
Without the changes,
“stressed” households
with TDSR ratios above 60
percent would be “held
to ransom” by lenders as
payments rose without
the option to refinance,
Citigroup noted.
“This ensures a softer
landing for such ‘stressed
households’ as well
as ‘fringe households’
(40-60 percent TDSR,
which form one in five
borrowers), whose debt
servicing burden could
deteriorate upon any
adverse changes in their
household cashflows,”
Citigroup said in a note.
La Trobe Street, Melbourne
A $350 million mega-tower
proposed for La Trobe Street
will be double the size of any
other Melbourne apartment
building and the third largest
in the world by floor area, if
approved.
The massive residential
skyscraper, the city’s
largest to date, will house
a population equivalent to
the small Gippsland town of
Foster in its 1343 apartments
which are set behind a
soaring, fluted, glass exterior.
A listed Malaysian
development company UEM
Sunrise is behind the project,
on a La Trobe Street site
opposite Melbourne Central
shopping centre. The huge
structure will rise 285.5
metres or 82 storeys into the
air and dominate the city’s
skyline.
It will dwarf the city’s next
biggest residential building,
which has 701 units and
was constructed last year by
another offshore developer,
Far East Consortium, on
Spencer Street’s old power
station si FR