DOES THE TOTAL DEBT SERVICING RATIO (TDSR) FRAMEWORK AFFECT THE HOUSEHOLD MOBILITY OF SINGAPOREANS?

Abstract

In recognising the escalating risk that could be magnified in the event of a credit crunch, the Monetary Authority of Singapore (MAS) introduced its 8th round of anti-speculation policies referred to as the Total Debt Servicing Ratio (TDSR) framework and refinement of Loan-to-Value (LTV) rules. The new TDSR framework serves to calibrate property loan size to the borrower’s repayment ability while the existing LTV limits help to control the loss exposure of Financial Institutions (FIs) should a borrower default. This helps to encourage financial prudence by ensuring that borrowers are not overleveraged in their property purchases while maintaining the robustness of the banking system’s capitalisation against any unforeseen market circumstances. With tighter borrowing restrictions, investors face roadblocks from seeking various flexible ways to secure multi-property loans. Similarly, middle-income Singaporeans who already have a HDB loan and wish to upgrade to a private property may also be constrained by the TDSR framework. Anecdotal evidence suggests that HDB upgraders suffer higher risks of being marginalised as they are more likely to be weighed down by the TDSR rules. Using the Difference-in-differences (DID) methodology, this study thus explores the impact of TDSR on the household mobility of Singaporeans. On hindsight, while TDSR had effectively improved borrowers’ risk profile and dampened speculative buying, it poses adverse effects on household mobility. Empirical results from the DID regression analysis revealed that the transaction volumes of HDB upgraders within the entry-level private housing market had almost halved since the introduction of TDSR. Furthermore, observations from the graphical DID approach showed that the fall in HDB upgraders in mass market condominiums had resulted in a demand shift towards the EC market shortly after the policy’s debut. The findings produced in this study warrant the need for MAS to fine-tune its existing rules to ensure that household aspirations of upward mobility remain uncompromised in view of the TDSR framework. While the framework should stay, it is imperative for the government to consider relaxing some ancillary rules within it to preserve the interests of these property ladder climbers.