The latest round of Singapore property cooling measures was announced in 6 July 2018. Many were taken aback by the surprise announcement by the government and it sent many home buyers into a state of turmoil for the mad rush to purchase a private residential unit on the night itself before it comes into effect on 6 July 2018. So what are these cooling measures and what are the reasons that it send buyer into frenzy?
Below are the top 10 questions on the mind of everyone and we will attempt to answer them one by one to our best of abilities.
1. The latest round of Singapore property cooling measures: What are they?
Two dramatic changes came in to effect on this round which is the decrease in the loan-to-value (LTV) limitations and the increase in the Additional Buyers’ Stamp Duties (ABSD). To summarize, to purchase a residential property now buyers will have to pay more stamp duties (with the exceptional of a few groups) and will not be able to acquire more mortgage loans as compared previously.
Below are the changes in the ABSD for Singaporeans purchasing their residential properties:
• For purchasers getting their 2nd residential property, they need to pay ABSD of 12% instead of 7%
• For purchasers getting their 3rd and/or above residential property, they need to pay ABSD of 15% instead 10%
• For property developers, they will need to 30% ABSD instead of 15% when they are acquiring properties for housing development.
Luckily, there is no change for Singaporeans and Singapore Permanent Residents who is purchasing their 1st residential property. For married couples who are Singaporeans who are upgrading their current matrimonial home under joint purchase and do not own any other residential property in Singapore, they will still be charge with the new ABSD but they are eligible for the remission so long that they sell off the their original home within 6 months from the collection of the keys to their new purchase.
|On and before 5 July 2018||After 5 July 2018|
|Singapore citizen purchasing 1st residential property||0%||0% (no change)|
|Singapore citizen purchasing 2nd residential property||7%||12%|
|Singapore citizen purchasing 3rd & subsequent residential property||10%||15%|
|Singapore Permanent Residents purchasing 1st residential property||5%||5% (no change)|
|Singapore Permanent Residents purchasing 2nd residential property||10%||15%|
|Foreigners purchasing residential property||15%||20%|
|Entities purchasing residential property (for non-development purpose)||15%||25%|
|Developers purchasing property||15%||25% + 5% (new, non-remittable)|
The LTV limits have also decreased which has effects for bank loans. (Mortgage loans from the Housing Development Board are not affected) With the drop in the LTV limit, buyers are only eligible to borrow lesser than before. This means that the down payments will get larger.
Below are the new LTV limits for a first mortgage loan, and what it means to the percentage of down payment:
|On and before 5 July 2018||After 5 July 2018|
|LTV limit for 1st mortgage loan||80%||75%|
|Minimum down payment in cash||5%||5% (no change)|
|Balance payment (Cash/CPF)||15%||20%|
If the buyer has existing mortgage loans that haven’t fully redeemed but still thinking of getting another mortgage loan for a house purchase, they will face even tighter LTV Limit. Below are the maximum LTV limit that one can loan with existing 1st, 2nd or subsequent mortgages.
|Before and on 5 July 2018||After 5 July 2018|
|LTV limit with an existing mortgage||50%||45%|
|LTV limit with 2nd or subsequent mortgages||40%||35%|
Note: For those looking for mortgage loan with tenures or than 30 years or the have the tenure lasting after 65 years old, the LTV will even be tighter.
2. What triggers this round of Singapore property cooling measures?
In short, the reason behind is the rapidly increasingly prices of residential properties. In the matter of fact, private homes prices were at their highest from April 2019 to June 2018 comparing them to 4 years earlier. The Monetary Authority of Singapore (MAS) does not implement any cooling measure without any reason. They imposed them when they feel that the market situation needed them.
In this aspect, the likely reason is due to the collective sale fever that happened starting from 2017 or so. Real estate developers had been acquiring old private residential developments at record breaking bids and snapping up lands and this had created hordes of newly millionaire buyers who are rich in cash.
This caused inflation for the demand for new residences especially private residential properties. When the round of 2018 cooling measures was implemented, the private residential market became slow and deflated. In the last 4 quarters of 2017, the property prices increased by 9.1%, it was an obvious sign that the private residential market had recovered.
The keep market in place, the latest round of Singapore property cooling measures are meant to deter buyers from speculating the market. In the long run, this should prevent bubbles from building up and stabilized the property market.
3. What does it mean for first time home purchasers?
For first time home buyers, whether they are buying from the HDB a Build To Order (BTO) flats, resale HDB flats, Executive Condominium (EC) or private residential properties, they are unaffected by the increase in the ABSD.
For those who are taking a housing loan from HDB, they are also not really affected by the new LTV limits. However, if they are taking a housing loan from the bank, they will need to chunk out more for down payments in CPF or cash as compared to prior 6 July 2018.
For those young buyers who are just starting work, they probably will have not much in their bank account and CPF account. Young married couples want to get a BTO flat or resale flat will probably get a housing loan from the HDB which is not affected and the down payment is only 10%.
However for those working getting an Executive Condominium, they do not really have a choice but to get a bank loan which is pretty much affected by this round of cooling measures.
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4. For those who plan to upgrade their homes, will they be affected?
For married couples upgrading their current home and given that they do not own any other residential property, they will not be affected by the increase in ABSD but the new LTV limits.
If they are buying a new property and had not sold off the existing one at the point of purchase, then they will have to pay the ABSD upfront first and then ask for a remission when they sell off their existing home within 6 months from the purchase.
Do note that the remission of ABSD is only applicable for married couples which at least one of the partners must be Singapore Citizen and the new purchase must be under joint ownership. It does apply to Singapore Permanent Residents, Singapore Citizens who are not buying under both spouses’ names as well as foreigners.
For those upgraders, they are still affected by the new LTV limitations whether they have existing mortgages or not. Upgraders just like first time home purchasers will still need to chuck out more from CPF or cash for the down payment.
5. What will be the impacts for the collective sale market?
For those staying in aging private residential properties and with the hope of being able to cash in on the collective sale trend, their dreams will probably on hold.
The new 5% non-remittable ABSD for the property developers is a substantial amount considering the price for the land acquisition. For example, the asking price for Mandarin Gardens is $2.96 billion based on that the 5% ABSD will be a whopping $148 million. For any developer, they will find that it will not be as profitable as before to for land acquisition.
The reason is being that pricing is much dependent on the surrounding existing developments; therefore developers will not be able to pass these costs to the purchasers. If the prices for these new launches are way too high, the potential purchasers will buy in the resale market. For those developments which is not sold 5 years from launch, their ABSD of 25% will not be remission which will be a high risk for the developers/
Instead, for those who had successfully en-bloc, it will be a celebration as they have avoided the new cooling measures. Those owners are probably the biggest winners from all these turmoil. They might need to acquire a new residential property but due to the cash payouts there will be no problem for them to fork out the 25% upfront down payment while getting a bank loan. Even if they wanted to pay full for the purchase they might be able to do so.
6. What if there is no existing mortgage?
The LTV limit does not actually impact on those who have fully paid for their mortgages. A general misconception will be that the LTV is derived based on the number of residential properties own but it is not. It is actually base on how many mortgages that is outstanding.
So long that there is no outstanding housing loan, the LTV limit will be treated the same as those who do not have any property. These cooling measures are designed to prevent any buyers from over committing such as having another mortgaged which is beyond the capability. If there is no outstanding mortgage loan then there is not much to worry about a lower than expected loan quantum for the next property purchase.
7. So what will happen to the prices of the property market?
This article is much about how the new cooling measures will control the private residential market and curb on the inflation of prices. From all these turmoil, the prices for private residential property are likely to stay stable whilst increasing at a reasonable rate.
Some unforeseen side effect is that the bigger size but older HDB flats such as jumbo flats, Executive Maisonette, Executive Apartments or bigger HDB resale flat might be in demand causing a rise in the pricings of these categories. Many of these en-bloc owners might prefer lower priced but bigger HDB flats. These categories of HDB flats are expected to increase in the pricings which in turn might have short term impact on HDB flats.
8. Will the new cooling measures impact the rental market?
For those who used to make good profit by renting their units out but have it slow these few years, there might be more inflow of rental units into the market. A number of owners got panicked and quickly trying to sell off their units.
For those with capability to hold their units, it is suggested to rent out at this moment to monetize the unit and wait for the settling down of these new cooling measures to sell off. Although there are much more competitions in the market but with reasonable asking rent and conditions to lease the units should not be big issue. Although it is the tenants’ market now, the rental should not be driven down to an unacceptable level.
At another instant, there are also new pools of tenants in the market. Those who just gotten their Singapore Permanent Residents’ status less than 3 years and also do not want or not able to pay the upfront down payment with cash.
9. Will there be a raise or lowering of interests for mortgage loans?
The earlier part of this article actually stated that many first time public housings purchasers will prefer to take mortgage loans from HDB as compared to banks. It will sound logical that banks will lower their interest rate for home loan in order to get back their market shares on this group of buyers. But the truth is the borrowing rates for banks are calculated based on macro factors which include the US Federal rates. Other factors include the world market. With the tensions of the US China Trade War, the interest rates are expected to increase but not at rate which is not acceptable by the market.
10. Are there changes to the current Total Debt Servicing Ratio with the new Singapore property cooling measures ?
The short answer is no. The TDSR still remains at 60% of the monthly income netted off any other financial commitments.
The TDSR was imposed in 2013 and is meant to limit the mortgage loan amount base on the borrower’s income. Example for one having a monthly income of $5,000, he/she should be only spending the maximum of $3000 for servicing the mortgage. No changes were made to this in the latest round of Singapore property cooling measures.
Want to know how the new cooling measures will affect the value of your property? Talk to us now an we will be glad to help with the valuation