Going down, down and away: Mortgage servicing ratio drags resale flat prices

4 price drops in a row.

Another proof that the government's cooling measures are getting effective has come. Resale flat prices drop to its lowest point in 2 years and has been dropping for 4 consecutive quarters in a row.

A PropNex analysis said that the HDB resale market continued to cool in Q2 2014; this is also the fourth consecutive quarter of price drops. 

According to HDB’s full quarterly data released today, resale flat prices fell 1.4 per cent to 195.7 points — the lowest in 2 years. For the first 2 quarters of 2014, the fall of 3 per cent has already eclipsed the 0.6 per cent registered in the entire 2013, and this sets the stage for further price falls in the year.

Here's more from PropNex:

The various measures, including loan curbs and the strong supply of new flats, continue to weigh down on demand, which brought about the sustained price decline.

The falling resale prices can be due to the potent combination of the government’s measures to cool the public housing market such as, reducing the Mortgage Servicing Ratio (MSR) cap of 30 per cent and the maximum loan term of 25 years for HDB mortgage loans, three-year wait for new PRs before they can buy resale HDB flats, and allowing singles to buy two-room BTO flats in non-mature estates.

Thus, these measures work in tandem to reduce the resale demand. The recent HDB's change to the valuation procedure has also created a more cautious approach from buyers, as they are more careful when giving an offer for a particular flat.

“Buyers are more conservative in their offers; for fear that the valuation is unable to match the price that they are offering. So when the owner accepts a lower offer, a lower transacted price will be registered. We foresee this trend to continue for the rest of the year.” But primarily, the main reason behind the slowdown in market activity is attributed to the income cap on how much buyers can borrow to pay off their mortgage. With smaller loans, some buyers can no longer afford to upgrade to larger flats.