How Singapore’s 7th Round of Cooling Measures Affects You

If you see property agents walking all bow-legged, hand them a Panadol: The poor guys just took a knee to the groin. It’s from the government’s secret fighting move: The 7th cooling measure. Property buyers across the board (private and HDB) now face more restrictions than a third world dictator at a UN trade meet. So if you’re looking to buy a house this year, best familiarize yourself:

 

Ice cubes

“And on the 8th round, we’ll strap down the developers and shove these in their pants crotch.”

 

What are the New Measures?

Let’s go over the new measures, and how they’ll affect you. These are:

For Private Property

  • Increased ABSD (Additional Buyer Stamp Duty)
  • Higher Cash Down Payment and Tighter LTV (Loan-to-Value)

For Public Housing (HDB/DBSS)

  • Increased ABSD (Additional Buyer Stamp Duty)
  • New Mortgage Servicing Ratio (MSR) Cap
  • Subletting Restrictions for PRs
  • Ownership Restriction for PRs

For Executive Condominiums

  • Increased ABSD (Additional Buyer Stamp Duty)
  • Restrictions on Size
  • Restrictions on Sale of Dual-Key units

 

Private Property

 

Swimming pool at condo

I think we can still afford it. I just thought of a way to skip the water bills.

 

Private property is the worst hit. It’s seen as a luxury, which is apparently code for “We can tax the hell out of it and not feel guilty”. Some changes are:

 

Increased ABSD (Additional Buyer Stamp Duty)

ABSD has increased by 5% to 7% across the board. A key difference is that Singaporeans pay ABSD as soon as their second property purchase. PRs pay ABSD as soon as their first property purchase.

 

Buyer

ABSD for 1st Property

For 2nd Property

For 3rd Property

Singapore Citizen

None

7%

10%

Permanent Resident

5%

10%

10%

Foreigners and Non-individuals (Companies)

15%

15%

15%

 

In my opinion, the revised ABSD might end up hitting tenants hard. I don’t foresee rich landlords backing down from a hot property, just because of a 7% to 10% increase. It’s more probable that landlords will buy anyway, then raise rental rates to compensate for the new price.

As for foreign buyers, raising ABSD by 5% is like trying to restrain a rhino with dental floss. We’ve collected more than half a billion dollars from ABSD, and still they keep buying. With Europe and America in a mess, the wealthy don’t have better places to invest.

All of this is however great news for first-time, Singaporean home buyers. The wealthy will still buy property, but the mass majority will give it a miss this time round and hopefully this will drive overall property prices down in the next 12 months. We believe there is a good chance it will.

 

Higher Cash Down Payment and Tighter LTV (Loan-to-Value)

Cash down payments have increased significantly. Also, loan restrictions from the previous cooling measure have been tightened even further:

 

1st Property Purchase 2nd Property Purchase3rd Property Purchase
LTV Limit 

80%, or 60% if loan tenure exceeds 30 years, extends past the age of 65

50%, or 30% if the loan tenure is more than 30 years, or extends past the age of 65

40%, or 20% if the loan tenure is more than 30 years or past the age of 65

Minimum Down Payment 

5% (for LTV of 80%)

10% (for LTV of 60%)

25%

25%

 

Hah! 25% cash down. 25 is, like, the number of dollars you’ll have left in your savings. This measure won’t curb rich speculators, but it might put a dent in sales volumes. Mass market properties are likely to be hit hardest, since they cater to an upper middle-class demographic (for whom 25% remains a significant sum).

And since many are now disqualified from the property game, other investments might see renewed interest. Perhaps the brokers and traders will see a mass return to equities, gold, REITs, etc.

 

For Public Housing (HDB/DBSS)

 

HDB flats

These need to be smaller. I can still get in the front door without crouching.

 

Public housing restrictions are mostly targeted at PRs. For Singaporeans, the government is trying to discourage the tendency of buying the biggest possible flat.

 

Increased ABSD (Additional Buyer Stamp Duty)

Refer to the ABSD table above. Note that if you are a Singapore Citizen, you are “automatically exempt” from the ABSD because HDB’s rule requires you to sell any other existing property you have with in six months of possession of the HDB/DBSS flat. So technically, your new HDB will be your “1st property” which means you do not pay any ABSD and your max LTV can be 80%. (Singapore PRs will have to pay 5%.)

 

New MSR (Mortgage Servicing Ratio) Cap

The MSR is the percentage of your income that can be used to service your housing loan. So the previous MSR of 40% meant you could take a housing loan where repayments would not exceed 40% of your income. The new MSR is 35%.

This will result in HDB buyers getting smaller loan quantums. That means smaller flats, and smaller resale values (public housing isn’t meant to make you money).

 

Subletting Restrictions for PRs

At present, PRs (Permanent Residents) who meet the MOP (minimum occupancy period) can sublet their whole flat. After this cooling measure, they’ll only be allowed to sublet specific rooms.

The effect of this must be viewed in tandem with another measure:

 

Ownership Restrictions for PRs

PRs must now sell their flats within six months of buying private property. Previously, PRs who met the MOP could retain their flat even after buying, say, a condo.

These measures remove some PRs from the crowd of upgraders (people who seek to move from HDB flats to private property). Previously, PR upgraders would buy private property, then rely on rental income from their flats to cover loan repayments. That method now fails harder than a 40 year old Twilight reader.

Fewer upgraders = Lower private property sales volumes

In addition, these measures free up supply in the resale market. We’ve explained why new BTO flats don’t help much in cooling the resale market: The problem has always been one of supply. By getting PRs to relinquish their  flats, we have a chance (a slight chance) of seeing some moderation in resale prices.

 

For Executive Condominiums

 

Executive condo

“Wait, you’re saying it’s *rich* people who are buying our most expensive units? That’s just shocking!”

 

Increased ABSD (Additional Buyer Stamp Duty)

Refer to the ABSD table above. Once again, if you are a Singapore Citizen, you are “automatically exempt” from the ABSD because HDB’s rule requires you to sell any other existing property you have with in six months of TOP/CSC of the EC unit (only applies to units purchased direct from the developer). So technically, your new EC will be your “1st property” which means you do not pay any ABSD and your max LTV can be 80%. (Singapore PRs will once again have to pay 5%.)

 

Restriction on Size and Sales of Dual-Key units

New ECs (Executive Condominiums) will be capped at 160 square metres. There are also restrictions on dual-key units:

A dual-key unit is a standard condo, with a studio apartment attached. There are separate front door keys for the main condo and the attached studio apartment, hence the term “dual-key”. Remember, it’s only sporting to give every burglar at least two tries.

With the new measures, dual-key ECs are restricted to multi-generational families. In other words, you have to be living with grandparents, great-grandparents, etc.

EC restrictions are a reaction to the infamous $2 million EC. This is what happens when property can be bought as if it’s public (with housing grants), and sold as if it’s private. Do the new measures prevent that?

Nope. It only prevents blatant abuses. Plenty of investors continue to see ECs as a first step into the property market; and the new EC restrictions won’t do anything about that.

 

In Summary

The new measures have been the most drastic so far. But while it’s gonna block the majority of local speculators, it’s probably not going to fully stop massive capital inflows: A lot of foreigners still see Singapore as a safe port (pun intended) for their money. Still, we believe sales volumes will drop significantly and property prices will follow suit.

Overall, we’d keep an eye on rental rates. With PRs not allowed to sublet their whole flat, and landlords facing added stamp duties, they might start climbing. It also doesn’t help that foreigners are now encouraged to rent instead of buy (higher stamp duty).

Current buyers might want to visit loan comparison sites, such as SmartLoans.sg, for help. With the new restrictions, financing is a lot more complicated.

Also, follow us on Facebook, and we’ll post updates as they happen!

 

Image Credits:
stevendepolo, ssedro, alantankenghoe

What do you think of the new property measures? Comment and tell us how it affects you!

Get more Personal Finance tips and tricks on www.MoneySmart.sg

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