The Monetary Authority of Singapore (MAS) has broadened the existing exemption from the total debt servicing ratio (TDSR) to ease the financing burden of borrowers who purchased owner-occupied residential properties and/or investment properties, before the introduction of TDSR. While a welcome relief for some borrowers, these exemptions are unlikely to stem the decline in new property transactions. Maintain NEUTRAL.
Broadens exemption from TSDR threshold. In a move to ease the burden of borrowers who face challenges refinancing loans for owner-occupied properties bought before the introduction of the total debt servicing ratio (TDSR) rules on 28 June 2013, the Monetary Authority of Singapore (MAS) has decided to broaden the existing exemption from the TDSR threshold of 60%. The exemption is extended to:
i) Refinancing of owner-occupied property loans. A borrower who purchased a residential property before the introduction TDSR rules will be exempted as long as he/she occupies the residential property that is being refinanced. The mortgage servicing ratio of 30% of gross monthly salary will also not apply to the refinancing of loans for HDB flats and executive condominiums that are owner-occupied and purchased before 12 Jan 2013 and 10 Dec 2013, respectively. Borrowers who purchased residential properties before the implementation (28 Aug 2013 for HDB flats and 6 Oct 2012 for other residential properties) of loan tenure limits of 30 years for HDB flats and 35 years for other residential properties will be allowed to maintain the remaining tenures of their loans, and
ii) Refinancing of investment property loans. The MAS will allow a transition period until 30 June 2017 for a borrower to refinance his/her investment property loans above the 60% threshold provided: i) the Option to Purchase of the property was granted before 29 June 2013, ii) the borrower commits to a debt reduction plan at the point of refinancing, and iii) the borrower fulfills the financial institution's credit assessment.
To ease pressure on borrowers, but unlikely to lift demand. The above exemptions should bring relief to borrowers looking to refinance property loans taken pre-TDSR rules. However, without the loosening of cooling measures on new property transactions, we expect property-related lending would continue to moderate in the months ahead. Growth in DBU housing loans has slowed to 9.5% in 2013 (2012: +15.9%) following the slew of property cooling measures. We maintain NEUTRAL on the sector, with DBS Group (DBS SP, BUY, FV: SGD19.40) as our preferred pick.