Affordability ceiling has fallen since loan curbs kicked in last year: Experts
The Straits Times – July 7, 2014
By: MELISSA TAN
The total home price that most buyers can afford has fallen steeply after tough loan curbs were introduced a year ago.
Consultants reckon the new “sweet spot” is up to $1.2 million in total for a new home, down from as much as $1.4 million before the total debt servicing ratio (TDSR) framework was imposed in June last year.
“Projects with units that are priced within the affordable range of $800,000 to $1.2 million still perform well,” noted Dr Chua Yang Liang, South-east Asia and Singapore research head at property consultancy JLL.
The TDSR caps the amount of monthly debt repayments for a borrower at 60 per cent of his gross monthly income, significantly slashing many buyers’ budgets. This has led many home seekers to pick smaller units like one- and two-bedders. These tend to have a lower total price, though the per sq ft (psf) price may be slightly higher than that of large units.
“Smaller, cheaper units with a maximum of two bedrooms have a dual purpose – it can be for investment and for (your) own stay,” said R’ST Research director Ong Kah Seng. “It is also easier to rent out a small apartment than a typical three-bedroom one that requires more tenants to get together to co-rent.”
He said that about $900,000 to $1 million per unit for a new private home would be considered affordable for a typical Housing Board upgrader household.
The consultants’ estimates are largely borne out by transaction data, based on caveats for new home sales lodged with the Urban Redevelopment Authority.
An analysis of caveats by The Straits Times found that more buyers have been gunning for units with cheaper total prices.
The number of new homes sold for under $500,000 was far higher after the TDSR was imposed than in the 12 months before that. There were 291 units costing less than $500,000 sold from July last year to June this year, yet only 61 homes in that price range were shifted from July 2012 to June last year – before the TDSR kicked in.
New home sales in the past 12 months have also started to tail off past the $1.2 million mark. For instance, there were 854 homes sold from July last year to June this year that cost between $1 million and $1.1 million.
That figure drops to 764 units in the $1.1 million to $1.2 million price range, falls to 618 in the $1.2 million to $1.3 million category, and drops to 411 units in the $1.3 million to $1.4 million range.
Homes that cost between $700,000 and $1.2 million accounted for a solid 49 per cent of the 8,254 units sold from the start of July last year to the end of June this year.
This new affordability ceiling has been reflected in recent launches.
Competitive prices helped projects like Coco Palms in Pasir Ris rake in stronger sales than other new launches in May, for instance. It moved 590 units that month at an average of $980 psf.
Before the TDSR was imposed, however, the “affordability ceiling” for buyers was much higher.
From July 2012 to June last year, home sales dropped off sharply only after the $1.4 million mark. There were 1,062 units in the $1.3 million to $1.4 million range sold within that timeframe.
However, the number plunged to 656 homes sold in the $1.4 million to $1.5 million price category.
