4 reasons why there will be fewer mortgage approvals in Singapore

As government implements new debt framework.

"We believe the 60% cap on TDSR is not harsh and is in line with industry practices, but the more stringent criteria and computation could result in fewer mortgage approvals, in particular: 1) the use of “guarantors” vs “borrowers”; 2) borrowers named on a property loan to be the mortgagers of the residential property (tax, stamp duty implications); 3) using income-weighted average age of borrowers for applying a loan tenure; and 4) applying a 3.5% medium-term mortgage rate (vs the current first-year market rate of 1-1.5%) to calculate TDSR," said Barclays Research.

The comment came as the Monetary Authority of Singapore (MAS) announced it will introduce a Total Debt Servicing Ratio (TDSR) framework for property loans granted by financial institutions (FI) to individuals, as well as refined rules related to the application of Loan-to-Value (LTV) limits to strengthen the credit underwriting practices of FIs, which have been “uneven”.

"Nonetheless, this should have less tightening impact on the market than the January 2013 measures. With the government still keeping a keen eye on the Singapore residential market, we would avoid pure-play residential developers," Barclays said.

"We continue to like CapitaLand (CAPL SP; OW; PT S$4.64) for its more diversified profile and recovering ROE, or the S-REITs, which we believe are looking more attractive after the recent price correction," it added.

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