Wednesday, November 20, 2013

TDSR in my opinion

Recently I was reading some write-up from some property firm talking about the problem with the Total Debt Servicing Ratio (TDSR) recently implemented. It was said that due to the TDSR, many owners will be forced to sell their properties later on when the interest rates go up which brings them above the TDSR. Seriously, I don't see what's the issue here.

The problem with the current property market here is that everyone assumes that interest rates will remain low. Is that a fact? No it is not. Therefore many people are taking advantage of the low interest rates to over-extend themselves and start buying up many properties. So what happens if the interest rates suddenly go up, and prevents you from servicing your loans?

No prizes for guessing. You will be forced to sell your properties and guess what, when that happens you have to sell it at a greater loss which may not even help you repay your debt due to the bad climate. And what will the average citizens do after that? Blame the bank and government when the interest rates rise. Nevermind that they actually over-extended themselves when they started buying multiple properties (e.g. earn $1, borrow $2).
The TDSR in my opinion was implemented to bring this situation up front so that we will not encounter the Great Recession crisis that happened to the US. If you are trapped in this credit bubble when the economy is still churning along, you will not suffer as great a loss as when you're forced to let go of your properties when the economy is in a down spiral.

TANSTAAFL. When someone wins, someone loses.

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