Debt ratio curbs 'won't be widened to non-property loans' Supervision by banks more useful than more rules, says Tharman Source: Straits Times By Daryl Chin Property Correspondent THE new total debt servicing ratio (TDSR) for property credit will not be extended to other types of loans any time soon, Deputy Prime Minister Tharman Shanmugaratnam said yesterday. After all, only about 5 per cent to 10 per cent of borrowers here are at risk of over-leveraging on their property purchases, he said. "We don't intend to, any time soon, extend the TDSR to other types of loans, but it is really for the banks to factor it into their own internal assessments," Mr Tharman, who is also the Finance Minister, said on the sidelines of a Jurong grassroots event. "Supervision is more useful when it comes to the broad range of loans, not just more and more rules," he said. The TDSR framework, which was introduced last month for property loans, takes into account a borrower's total repayments such as mortgages, and car and student loans. Banks have to check and ensure that the total monthly debt repayments of those taking up property loans do not exceed 60 per cent of their gross monthly income. The Monetary Authority of Singapore had said earlier this month that it was closely monitoring the lending practices of banks and data trends for non-property loans, and may consider applying the TDSR rules for other loan types if the need arose. Mr Tharman said yesterday that he hoped the banks would, apart from following the rules strictly, do it in the "right spirit for other loans" as well. Non-property loans typically make up a smaller portion of a household's overall debt burden compared to a mortgage, but some banks already consider a borrower's total debt for loans on potentially big-ticket purchases such as cars, for instance. The minister also revealed that an estimated 5 per cent to 10 per cent of borrowers here were at risk of over-leveraging, likely because they were juggling two or more home loans at the same time. These people are excited by the upswing of the market and are taking advantage of the low interest rates, but will be caught out when interest rates rise and property prices fall, he said. If left unchecked, this could lead to a similar scenario as the one that was played out in the 1997 Asian financial crisis, when many buyers were forced to sell in the face of high interest rates. "Property prices dropped monthly then, and every week, more and more homes were put on auctions," recalled Mr Nicholas Mak, SLP International's head of research. Mr Tharman reiterated the fact that the TDSR was meant to be a long-term measure for financial prudence, while other instruments such as the loan-to-value limits were meant to cool the property market. "It is not a science; we tried to calibrate it as well as we could. It has got a bit of bite, but it is not going to be something that impacts the current cycle in any strong way," he said. darylc@sph.com.sg UNEASE AS PROPERTY FUELS RISE IN HOUSEHOLD DEBT Few takers for HDB's roof upgrade plan It once again calls for Singapore firms to come with ideas for project Source: Straits Times By Daryl Chin Property Correspondent AN AMBITIOUS plan to upgrade the roofs of all Housing Board blocks has stalled due to a lack of local companies stepping forward to submit ideas. Only two companies have put forth plans for the revamp - which could mean solar panels being fitted on rooftops across the island. Neither of them met the requirements. Now, the HDB is once again calling for Singapore companies to bid for the project, which is expected to be test-bedded within a year. Documents on the Next Generation Roofing System for Public Housing were first released last October. Although no details of the two companies were available, industry watchers said the low take-up rate could be due to a lack of resources and local firms' fears over the potential risks involved. The call for proposals was launched as part of the Public-Private Co-Innovation Partnership. This scheme seeks ideas from local companies in order to help the Government deal with the "many challenges and needs that do not have existing solutions". The HDB needs to find a cost-effective way to upgrade the roofs of its 9,300 HDB blocks. It wants to make sure they can shield residents from heat, prevent water from seeping in and possibly generate solar power. There are no "off-the-shelf" solutions on the market to replace the current designs, some of which are outdated. For example, the 6,000 blocks built before 1998 have two parts to the roof. There is a main waterproofing portion - which has components that need to be replaced every decade - and a secondary part above it that has an air pocket and acts as the heat insulator. This means the HDB and town councils have to carry out regular waterproofing works, which cause inconvenience to residents. Viable solutions will be test- bedded in two HDB blocks within a year, and may later be introduced across the island. Approved ideas will receive up to $1.75 million in government funding. Only local companies can take part, and at least 30 per cent of their shareholders must be Singaporeans or permanent residents. Scientist Nilesh Jadhav of Nanyang Technological University's Energy Research Institute said the individual technologies for the various requirements already exist in the marketplace. But local companies, especially the smaller ones, may not have the resources or will to take advantage of them. He said the winning proposal would be a unique product for the Singapore market. Companies might be held back by fears that it might not adapt well if used abroad, limiting the potential profits. Mr Chan Chong Beng, president of the Association of Small and Medium Enterprises, said that the work might be beyond the scope of smaller companies. Some of them might also think it too much of a risk, even with funding, he said. "There is also this perception that a company might not be able to retain as much of the intellectual property as it might like," said Mr Chan. According to the Co-Innovation Partnership website, the Government has the right to use the intellectual property for the roofs. It could also grant licences to not-for-profit organisations and other third parties if need be. The tender closes on Aug 14. darylc@sph.com.sg Coming: New amenities for upset residents New flats will bring more shops to those rehoused under Sers project Source: Straits Times By Melody Zaccheus FOR years, residents in Strathmore Green and Forfar Heights have complained of a lack of amenities. With no coffee shop or wet market in the immediate vicinity, the elderly face a 15-minute bus ride, sometimes while clutching their groceries. Now, however, new shops, a minimart, an eating house and a supermarket are due to be built alongside two new public housing projects. SkyVille @ Dawson and SkyTerrace @ Dawson will be ready by 2015, said a Housing Board spokesman. Resident Catherine Lim, 75, told The Straits Times: "It will be nice to have a few more options nearby to cater to our daily needs." Many of those living at Strathmore Green and Forfar Heights said they were rehoused over the past 10 years under the Selective En bloc Redevelopment Scheme. They told The Straits Times that the lack of coffee shops and a wet market in their new neighbourhood had been a big headache. Cleaner Kim Lee, 64, said the new high-density residential area relies on a handful of shops at nearby Dawson Place Shopping Centre, a two-storey HDB mall with a small food court and a FairPrice supermarket. "The place is really lacking," she said in Mandarin. "Sometimes I can't get fresh produce because other residents have already snapped up the ingredients." Residents can also take a 15-minute bus ride to the wet market and hawker centre at Block 159 Mei Chin Road. But Madam Lim said that this is "troublesome" for someone her age, especially if she has to carry groceries. The retiree added that she much preferred life in her former neighbourhood at Commonwealth Avenue. "We had everything from cheap and good hawker food, provision shops, a tailor, salons and banks at our doorstep," said Madam Lim. Mr Kwek Li Yong, the 24-year-old founder of civic group My Community, said important places in the estate had been demolished but not replaced fast enough. He added that at least five hawker centres and markets had yet to be replaced, including the Princess Market and Food Centre. "Hawker centres and markets are third spaces where people gather," said Mr Kwek. "When we tear down these spaces, we are also reducing bonding opportunities among residents." MP Chia Shi-Lu said there had been a "lag" between demolition and redevelopment but efforts had been made to cater to residents' needs. He added that he was looking into arranging a shuttle service to make it easier for people to get to the Mei Chin Road wet market. He had also been liaising with government agencies and private businesses about developing the area. Madam Tang Siew Noi, 77, hoped the new shops would come fast, adding: "I may not be around to enjoy the new amenities by the time they start building them." melodyz@sph.com.sg Unease as property fuels rise in household debt Debtors could be hit hard if interest rates rise or economy dips: Analysts Source: Straits Times | Money By Goh Eng Yeow Senior Correspondent DURING the global financial crisis five years ago, one local bank boss quipped that his management went through so many stress tests on the loans book that they were stressed out themselves. Well, stressful times are back. You can't blame analysts for going into overdrive trying to suss out the various economic scenarios that could emerge here after the United States central bank flagged a possible tightening of its monetary policy. Recent history has shown that monetary tightening by the mighty Federal Reserve can be messy affairs. A recent report by Nomura shows that when the Fed reversed gears in 1994 the stock market in China - the region's economic giant - fell an eye-popping 20 per cent while a similar move in 1999 sent it plunging 31 per cent, as the region faced a big credit squeeze. This time, the picture is not looking pretty either. Any Fed tightening could clash head-on with a slowdown in the mainland's huge manufacturing sector and precipitate a region- wide economic reverse, given China's important role as a big commodity buyer. And with Singapore interest rates tracking the US very closely, the impact could be a double whammy for borrowers who took out huge mortgages to buy property. While Nomura regards Singapore as medium-risk where financial crises are concerned, it flags the 50 percentage point rise in private debt over the past four years as a potential flashpoint. Its studies have shown that in large economies such as the US, Japan, Europe and China, financial crises were often preceded by the proportion of domestic debt to gross domestic product surging by 30 percentage points or more in the previous five years. Nomura identifies the big jump in home loans as a culprit: "To the extent that the low-interest environment in Singapore has sucked in significant investments into property, there is a concern that the high leverage is due to over-investment in property." So, it is just as well that the Government took steps last month to restrict a home loan applicant's total monthly debt repayments to 60 per cent of his income. That will stop more home buyers from becoming financially overextended but what about those households that are already knee-deep in debt? This question was posed by Citi Investment Research when it warned in a recent report that rising debt levels may put a lid on any further gains in the Singapore stock market. Its analysis found that household debt has risen to about 77 per cent of GDP. "This is similar to levels recorded before the Asian financial crisis nearly two decades ago," it added. This is not exactly the most propitious comparison to make, considering we have just recently suffered our worst bout of haze in 15 years since the 1997-1998 Asian financial crisis. Like Nomura, Citi noted that the rise in household debt levels is largely due to the big jump in the number of mortgages - accounting for 60 per cent of total household liability against 51 per cent in the first quarter of 2010. But the good news, according to Citi, is that interest rates would need to double to depress affordability to the lows posted between 2001 and 2006, when the residential property market last experienced a wobble. It also helps when price hikes on a per-square-foot basis are partly offset by declining unit sizes. This makes flats more affordable in absolute terms. Citi estimates that at a mortgage rate of 1.4 per cent, a household with a monthly income of $13,500 would need to use only 20 per cent of that to meet the monthly mortgage instalment on a $1 million condo, even if it maxes out on the loan it can take. That would go up to 25 per cent of monthly household income if mortgage rates hit 3.5 per cent - the medium-term interest rate that the Government has mandated banks to use in computing a home loan taken by the borrower. Of course, Citi assumes that household income will stay intact. That may not hold true if the economy hits a rough patch and causes unemployment to shoot up. Affordability will drop sharply if a household with two wage earners loses one, for whatever reason. Citi posed another question: Which segment of the population is most likely to feel threatened by an interest rate hike? "Is it the group (aged 30 to 49) with a high percentage of credit card balances being rolled over, or the peak income group (between 45 and 54 for those with diplomas, professional qualifications or degrees) which will be most vulnerable when interest rates eventually normalise?" Hopefully, such concerns can be kept at bay as the economy hums along. Some economists are predicting that Singapore's economy will grow at a faster pace but that assumes the rest of the region, including China, will be enjoying blue skies too. engyeow@sph.com.sg |