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Singapore Introduces Cooling Measures for private, HDB properties kicking in from Dec 16 2021

Posted by alvintay on December 17, 2021

SINGAPORE, 16 December 2021 – The government has implemented the latest round of cooling measures (12th) targeted at the private residential and HDB resale markets, with effect from 16 December 2021. The package of measures – comprising higher Additional Buyer’s Stamp Duty (ABSD) rates, tighter Total Debt Servicing Ratio (TDSR) threshold, and tighter LTV limits for HDB loans – affects all categories of buyers.

  • Loan-to-value limits for HDB housing loans will be tightened from 90 per cent to 85 per cent
  • Additional Buyer’s Stamp Duty for Singapore citizens buying their second residential property will be raised from 12 per cent to 17 per cent of the property price
  • Those buying their third unit and more will pay the stamp duty of 25 per cent, up from 15 per cent
  • The Total Debt Servicing Ratio will be lowered from the current 60 per cent to 55 per cent

The latest announcement did not come as a surprise as the Singapore property market has been exuberant, with private residential and HDB resale volumes set to hit multi-year high in 2021. The robust home demand has been fuelled by several factors, including the low interest rate environment, ample liquidity in the market, attractive housing projects, and optimism arising from pandemic recovery, amongst others.

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From Thursday, the loan-to-value (LTV) limits for HDB housing loans will be tightened from 90 per cent to 85 per cent. This means that the maximum loan amount the housing agency will lend to buyers will be 85 per cent of the property purchase price. This does not apply to loans granted by banks, where the LTV limit will remain at 75 per cent.  Buyers of new and resale HDB flats have the option of taking a mortgage from either the housing agency or a bank.

The tighter LTV ratio (85%) for HDB loans is unlikely to have a significant impact on demand as most of the buyers have tapped financing from the banks to fund their purchase due to the lower interest rates.

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Higher ABSD 16 Dec 2021

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The ABSD rates for Singapore citizens buying their second property will be raised from 12 per cent to 17 per cent of the property price. The rates for those buying their third unit and more will go up from 15 per cent to 25 per cent. Permanent residents (PRs) buying their first property will have to pay an ABSD of 5 per cent, which is unchanged from current regulations. However, those buying their second property will see the stamp duties go up from 15 per cent to 25 per cent. For their third home and beyond, PRs will pay 30 per cent ABSD, up from 15 per cent. Foreigners buying properties here have to pay an ABSD of 30 per cent, up from 20 per cent. Developers of residential projects will also have to pay a higher ABSD of 35 per cent, up from 25 per cent. This 35 per cent can be remitted if they fulfil certain conditions. For example, licensed housing developers must sell all units in their new projects within five years of buying the site. But there is an extra 5 per cent that they have to pay that cannot be remitted. This non-remissible 5 per cent was introduced in the 2018 property cooling measures and remains unchanged. However, the Government has provided temporary extensions to developers who need to sell within the five-year timeframe, due to construction challenges brought about by the pandemic. If the buyers are married couples with at least one Singaporean spouse, they can apply to have their ABSD refunded if they manage to sell their first property within six months of buying their second one.

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2021 Total Project Sales
2021 Total Project Sales

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Looking at the caveats lodged, foreigners accounted for only about 5% of non-landed new private home sales this year – the majority of the demand was from Singaporeans which 75% of the new launches sales are purchased by 1st timers.

To the 1st Timers who is looking to upgrade from HDB to Private, The hike in ABSD may encourage them to sell their flat first before picking up a private home as they may not have sufficient funds for the upfront ABSD payment.

In the short run, there will be impact on the Foreigner Purchaser which most of them usually bought into Core Central Region (CCR) Property. Therefore, the Core Central Region (CCR) are likely to face more downward pressure, compared to the other sub-markets: Rest of Central Region (RCR) and Outside Central Region (OCR). Some developers of CCR projects may trim average prices by about 5% in 2022 in response to the measures, slowing demand from foreign buyers and the ample unsold supply in the CCR.

Meanwhile, home values in RCR and OCR should remain resilient given tighter supply in these segments and as upgrading demand lend support to prices.

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Due to the increase in ABSD for the Entities from 25% to 35%, Developer faced higher risk if units are not fully sold within 5 years from acquisition. Therefore, Bigger site will faced more resistance on Enbloc Sales and developers will be more conservative on their subsequent land bidding.

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The TDSR (Total Debt Servicing Ratio) threshold will be tightened from 60 per cent to 55 per cent. This means new mortgages cannot cause borrowers’ total monthly loan repayments to exceed 55 per cent of their monthly income. For buyers who have been issued with an OTP on or before Dec 15, the previous 60 per cent TDSR will apply whether or not they have exercised their OTP at the point of applying for a home loan. Borrowers with existing property loans granted before Dec 16 will not be affected by the revised TDSR threshold when refinancing their loans.

Bank Borrow Data

Base on Bank Data, Most Buyer Borrow below 46% of their Income which mean the measure of 55% TDSR is unlikely to impact these buyers.

Understanding the Impact of TDSR
Understanding the Impact of TDSR

For those who are tight on their borrowing, the impact as seen on a 1.2M Property (30 Years Loan) would be $130k Loan different which buyer can either do a Pledging of $50k (Est.) with Bank or do a show fund of S$170K(Est.).

It is not surprised that the government has rolled out fresh cooling measures as the market has been lively this year, with very robust sales and firmer prices. Generally, this set of measures will encourage home buyers to be more prudent with their purchases, amid concerns about impending interest rate hikes.

previous Cooling Measure impact

But if history do repeat itself, after everyone take a breather and sit out the next one to two months to assess the impact of these measures on the market. The market likely to move up and thus the next six month will be the best window period to enter the market before it picked up.

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