SG Residential Property - OCBC Investment 2016-09-02: Fine-tuning TDSR rules for refinancing

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SG Residential Property - Fine-tuning TDSR rules for refinancing

• Refinancing rules under TSDR tweaked.
• Limits for new loans unchanged.
• Overall positive for the sector.

More borrowers exempt from TSDR when refinancing 

• The MAS announced yesterday that it would fine-tune the refinancing rules under the Total Debt Servicing Ratio (TDSR) such that borrowers for owner-occupied residential properties bought after the introduction of TDSR would now be exempt from the TDSR framework when refinancing the property loan. Under the previous set of rules, the exemption only applied to owner-occupied residential properties bought before the TDSR was implemented. 
• For investment properties, borrowers will also be exempt from the TSDR framework if they meet two conditions: 
  1. commits to a debt plan with his financial institution to repay at least 3% of the outstanding loan balance over a period of not more than three years; and 
  2. fulfills his financial institution’s credit assessment. 
• Similarly, the exemption from TSDR requirements only previously applied to investment properties bought before TDSR was introduced. These new rules will take immediate effect.

Not an easing of property curbs, but a positive move nonetheless 

• The authorities have indicated that these changes were made in response to feedback that some borrowers were unable to refinance existing loans due to the 60% TDSR threshold and this would now give existing borrowers more flexibility in managing their debt obligations at lower rates. 
• They also emphasized that this should not be taken as an easing of the property cooling measures; the TDSR was implemented to encourage prudent borrowing by households, and limits regarding new property loans has not been changed. 
• We believe these fine-tunes are very well thought-out and would add a measure of stability into the balance sheets of existing borrowers. At the margin, this could relieve some stress on the secondary market and is overall positive for the domestic housing market and the banks’ mortgage loan books. 
• While the developers are likely to react positively to these news in trading today, our sector views are based primarily on valuations and longer term fundamentals of the housing market, for which home prices are likely to further decline over FY16-17. 
• Maintain NEUTRAL on the property sector; we continue to prefer diversified blue chips with healthy balance sheets and strong business models. 
• Our top picks are CapitaLand [BUY; S$3.68], City Dev [BUY; S$9.89] and GLP [BUY; S$2.37].

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2016-09-02

OCBC Securities Analyst Report BUY Maintain BUY 3.68 Same 3.68

BUY Maintain BUY 2.37 Same 2.37

BUY Maintain BUY 9.89 Same 9.89