https://www.linkedin.com/pulse/how-identify-resilient-property-proven-value-using-mani/
With the sprout of properties vying for investment, how do we determine which are the resilient properties that can withstand time and changes in the economic landscape?
Why is the Singapore property market resilient?
From 2009 onwards, the Government intervenes by introducing a series of cooling measures to ensure a stable and sustainable property market.
These cooling measures were introduced to cool the property market due to the rapid escalation of residential property prices.
Singapore took less than 2 years to rebound back to its PPI peak in Q2 of 2008.
The PPI (Private Property Index) increased by almost 55% from Q2 of 2009 to Q4 of 2011!
1. LTV (Loan-To-Value)
To protect property buyers from over-borrowing, the Singapore government has set an LTV limit for bank housing loans.
The LTV limit defines the maximum home loan amount a bank can grant you as a percentage of the property’s market value (i.e. its valuation)
This prevents a property buyer from over-leverage.
2. ABSD (Additional Buyer’s Stamp Duty)
It is a tax that is levied on top of the BSD (Buyer’s Stamp Duty, a tax that property buyers have to pay when they purchase a property).
If you’re a Singaporean citizen, ABSD applies to you only when you purchase more than one residential property.
This prevents a property buyer from over-commitment.
3. TDSR (Total Debt Servicing Ratio)
TDSR refers to the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for.
A borrower’s TDSR must be less than or equal to 60%.
This prevents a property buyer from over-borrowing.
All of the above cooling measures will prevent the reasons that created the property market crash during Q2 of 2008 to Q2 of 2009 caused by the distressed sellers.
4. A Healthy Ratio Of Owner-Occupied Property
According to the annual stress-testing by MAS, the results indicate that households’ MSR (Mortgage Servicing Ratios) would remain manageable under ‘stressed’ situations. Under a severe stress scenario of a 10% fall in income, on top of a 250 basis points increase in mortgage rates, the MSR for the median household remains below 60%.
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