Between 2009 and 2013, there were eight rounds of government intervention in Singapore’s residential property market. Although most of the intervention measures introduced had some initial moderating effect, strong liquidity and low interest rates kept the market buoyant and sustained demand. However, the Total Debt Servicing Ratio (TDSR) framework that was introduced in June 2013 seems to have arrested demand to a significant degree. The TDSR requires banks to take into account the borrower’s property loans and any other loans he/she may also have, and sets a loan threshold based on 60.0% of the borrower’s gross monthly income. It also tightened loopholes relating to proxy borrowers and guarantors.

Under the TDSR requirements, many property buyers have difficulty in securing their intended loan amounts and either decide not to purchase or resort to more affordable acquisitions. Compared to the first half of 2013, private residential sales transactions fell by about 50% in the second half. In the primary market, responses from buyers were mixed. While new projects in attractive locations with competitive pricing managed to achieve good sales, many others had difficulty in attracting buyers.

While the impact of the TDSR on sales volume was immediately felt in the months after its implementation, the effect on prices only became apparent in the final quarter of 2013. The Urban Redevelopment Authority’s residential property price index slipped 0.8% in 4Q13, the first decline since 1Q12. Its decline was also accompanied by falls of 2.2% and 0.6% in the price indices for non-landed homes in the Core Central Region (includes the prime districts) and Outside Central Region (suburban market) respectively. The price index for landed homes also slid 1.2% during the quarter. It is significant that prices in the suburban market and the landed segment are showing signs of correction as these two segments have been known to be more resilient due to strong underlying demand.

In 2014, the TDSR and other cooling measures will continue to moderate demand for residential properties. Developer sales peaked in 2012 with 22,197 transactions but slowed to about 15,000 in 2013. It could moderate by 20-30% in 2014, judging from the trend in the second half of 2013. Slower sales in new projects have led developers to also slow their new sales launches so as to avoid “bunching” of supply as well as allowing more time to re-work pricing and marketing strategies. There are about 6,000 units unsold in projects that have been launched for sale and another 11,000 units in projects approved for sales but not launched. Besides competition amongst new projects, there will also be pressure on projects launched earlier at higher prices but left with substantial stock to clear.

The ultimate effect of substantial unsold supply and slowing demand is a downward pressure on prices. Therefore, the decline in the price indices in 4Q13 may be seen as a harbinger of price trends in 2014. Since the economic and employment outlook for 2014 remain positive, a major price correction is unlikely but a gentle easing in prices would not be an unreasonable expectation.

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