In recent years, the Singapore property market has been outperforming most other investment instruments. Real Estate has entered the ranks of the 5Cs in the Singapore dream. A number of my friends have their eye on the next downturn; waiting on the sides to enter the market. It has become so popular that the government has to step in to prevent a property price bubble from forming. We have seen several measures taken to cool the market. Property prices have stabilized somewhat but there is still no sign of it dropping. Thus the latest measure, which is the topic of our discussion in this issue.
____________________________________________________________________
On 29th June 2013, MAS announced the standardization of the debt service ratio which banks have to use when granting property loans. Debt service ratio is the percentage of a borrower’s gross income that is used to make mortgage repayments.
The Total Debt Servicing Ratio (TDSR) is capped at a maximum of 60%, taking into consideration all debt, which include:
- Property Loans
- Bank Loans
- Credit Card Outstanding Balances
- Car Loans
Other factors include:
- Medium term interest rate (3.5%) is used for calculation instead of prevailing interest rate.
- Guarantors named on a property loan will also be considered as mortgagers of the residential property for which the loan was taken.
What this means to you
Using a simple example, John and Mary, both 35, married with 2 kids, with a combined income of S$120,000 per annum, have the following assets and loan.
They have a total loan amount of S$2,222 per month combined (S$1,201+S$1021). Should they wish to buy another property, the maximum monthly loan instalment amount they can take now is S$3,778 (S$120,000/12 x 60% - S$2222).
Based on the new ruling of medium term interest rate of 3.5%, with a loan term of 30 years (till age 65 only), the maximum loan they can take up is estimated to be S$830,000 for any new property they intend to buy.
The government is trying to prevent people, from overleveraging and getting complacent in assuming that prices will keep going up. We need to understand that there is no guaranteed in life
No guarantee that:
- Property price will keep going up
- Interest Rate will stay low
- Able to receive rental continuously
- We are able to enjoy our income, and we won’t lose our job.
Although wealth accumulation has slowly become an obsession with Singaporeans, it’s important for us to always maintain financial prudence and ensure that we cover all risks to protect our income.
Seek advice from your trusted Financial Consultant when making major financial decisions so that when unfortunate events in life hit us, we know that we are well shielded and not burden anyone with huge debts.
Don't wait for the best time to get your estate planning, do it right now when you are healthy and able to focus on tasks without any distractions.
ReplyDelete