Singapore Property - RHB Invest 2016-09-02: MAS tweaks TDSR rules on refinancing of loans ~ Not a relaxation of cooling measure.

Singapore Property: - RHB Invest 2016-09-02: MAS tweaks TDSR rules on refinancing of loans - Not a relaxation of cooling measure. CITY DEVELOPMENTS LIMITED C09.SI CAPITALAND LIMITED C31.SI

Singapore Property - MAS tweaks TDSR rules on refinancing of loans - Not a relaxation of cooling measure.

Whats New? 

  • Monetary Authority of Singapore (MAS) today announced tweaks to refinancing rules under the Total Debt Servicing Ratio (TDSR) framework based on market feedback. 
  • The refinements only applies to refinancing of home loans and the existing TDSR framework and threshold(60%) will continue to apply to new property loans. 
  • MAS has stated that this is not a relaxation of property market cooling measure and is mainly to streamline and enable borrowers to better manage their existing debts.

What has Changed? 

Refinancing of owner occupied housing loans

  • Exisitng: For owner-occupied residential properties bought before the introduction of TDSR, a borrower may be exempted from the TDSR framework when he refinances his housing loan.
  • New: MAS will now extend the same concession on refinancing to all owner-occupied residential properties, including those bought after the introduction of TDSR. This adjustment recognises that all new housing loans would have been subjected to the TDSR framework at inception.

Refinancing of investment property loans

  • Exisitng: For properties that were purchased for investment before the introduction of TDSR, borrowers can refinance above the TDSR threshold of 60% if they commit to debt reduction plans when refinancing their loans.
  • New: MAS will now allow a borrower to refinance his investment property loan above the TDSR threshold, regardless of when the property was purchased, if he meets the following two conditions: 
    1. commits to a debt reduction plan with his financial institution to repay at least 3% the outstanding balance over a period of not more than 3 years; and 
    2. fulfils his financial institution’s credit assessment.
  • The rule takes immediate effect.

Our view: 

  • The policy tweak is not expected to increase demand for new homes as new home loan borrowers are still subjected to strict TDSR regulations and existing property measures. The main objective of the move is to allow existing borrowers to take advantage of the current prolonged low interest rate environment and refinance at lower rates without again being subjected to rigorous TDSR checks. About 5-10% of households here estimate to be highly leveraged according to media sources.
  • We do not expect any lifting of cooling measures this year in light of current pickup in home sales on the back of higher discounts offered and aggressive marketing. We expect the prices to correct by another 5-10% over the next one year. 
  • Maintain our Neutral view on Singapore sector. 
  • We would recommend investors to accumulate City Developments (Take Profit, TP: SGD 9.04) on any sharp dips and have a Neutral recommendation on CapitaLand (TP: SGD 3.15).

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-02
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