New property cooling measures were recently announced, and boy, did it send Singaporeans into a frenzy as everyone rushed to buy condo units the night before they kicked in. So… what are these property cooling measures and why did everyone freak out about them?
Here are 10 biggest questions on everyone’s minds, and our answers (to the best of our abilities, anyway).
- What are the new property cooling measures?
- What did we do to deserve this!?
- What does this mean for first-time homebuyers?
- What does this mean for home upgraders?
- How are en bloc sales affected?
- What if I’ve already paid off my existing properties?
- What’s going to happen to property prices now?
- Will the cooling measures affect my rental income?
- Will banks raise or lower their loan interest rates?
- Is there any change to TDSR?
1. What are the new property cooling measures of 2018?
Two major changes kicked in on 6 July 2018 – Additional Buyer’s Stamp Duty a.k.a ABSD went up, while loan-to-value or LTV limits went down. In short, home buyers now have to pay more taxes, AND cannot borrow as much money as they used to.
Here’s what happened to Additional Buyer’s Stamp Duty (ABSD) for Singapore citizens buying residential property:
- For 2nd home buyers, ABSD went up from 7% to 12%
- For 3rd/subsequent home buyers, ABSD went up from 10% to 15%
- Property developers also have to pay ABSD (e.g. when they buy en bloc) and it has gone up from 15% to 30%
Thankfully, there’s is no change for Singapore citizens/PRs buying their first home. If you’re upgrading your home, you’ll be charged ABSD but you can get it refunded as long as you sell off your original property within 6 months.
|Before 6 July 2018||6 July 2018 onwards|
|Singapore citizen buying 1st property||0%||0% (no change)|
|Singapore citizen buying 2nd property||7%||12%|
|Singapore citizen buying 3rd & subsequent property||10%||15%|
|Singapore PRs buying first property||5%||5% (no change)|
|Singapore PRs buying 2nd property||10%||15%|
|Foreigners buying property||15%||20%|
|Entities buying property (non-developer)||15%||25%|
|Developers buying property||15%||25% + 5% (new, non-remittable)|
At the same time, loan-to-value (LTV) limits dropped, which has repercussions for bank loans. (HDB loans are not affected.) With a decrease in LTV limit, you’re allowed to borrow less than before. Which means… your down payment just got bigger.
Here are the new limits for your first home loan, and what that means in terms of your down payment:
|Before 6 July 2018||6 July 2018 onwards|
|LTV limit for 1st home||80%||75%|
|Minimum cash down payment||5%||5% (no change)|
|Remaining down payment (cash/CPF)||15%||20%|
If you have outstanding home loans that you haven’t paid off, but you still gey kiang want to buy another house, the LTV limit is even tighter now. Here’s the maximum you can borrow for your 2nd, 3rd or subsequent home:
|Cooling measures for subsequent homes||Before 6 July 2018||6 July 2018 onwards|
|LTV limit for 2nd home||50%||45%|
|LTV limit for 3rd home onwards||40%||35%|
Note: If you’re looking at home loan tenures of more than 30 years (or if you’ll still be in debt after age 65), guess what? The LTV ratios are EVEN TIGHTER.
2. What did we do to deserve this!?
In a nutshell, it’s because property prices have been rapidly rising. In fact, private property prices in April to June 2018 were the highest its been in the past 4 years.
The government – MAS, to be exact – doesn’t impose cooling measures for fun. They’re only implemented when there’s a situation that warrants them.
In this case, it’s most likely due to the en bloc frenzy over the past year or so. Developers have been offering record-high bids for old residential properties, snapping up homes and creating swarms of newly cash-rich buyers.
This has inflated the demand for new homes, especially for private property. Remember how the private property market kinda deflated for a few years after the cooling measures of 2013? Well, it’s obviously recovered in late 2017. Prices rose by 9.1% over the past 4 quarters.
To prevent prices from going up further, the cooling measures of 2018 are meant to make Singaporeans less enthused about buying new condos. In the long run, property prices should stabilise or eventually decrease.
3. What does this mean for first-time homebuyers?
Maybe you were planning to pop the BTO question to your sweetheart, but you hum ji, and now you’re kicking yourself for not asking before the cooling measures were announced.
Take heart, as first-time homebuyers – like couples hoping to BTO or buy a resale flat – are not affected by the ABSD increase.
But, you will be affected by the tightened LTV limits. It means that if you want to take out a bank loan, you need to pay a huge chunk (a quarter!) of the flat’s value in cash or CPF.
If you’re in your 20s, you probably don’t have that much on hand in either your CPF account or bank account. Many young couples will have no choice but to turn to HDB housing loans, which remains unaffected and allows a more affordable 10% downpayment.
However, if you’ve been in the workforce for a while and have enough cash or CPF savings to pay for your downpayment, tyhe cooling measures may not be a bad thing. You can now unlock more of your CPF (now 20%, up from 15%). Getting a smaller loan also means you pay less interest in the long run.
4. I was planning to upgrade my home. Am I affected?
If you’re simply upgrading the home that you live in – not buying multiple properties – you will not be affected by the ABSD, only the revised LTV limits.
The ABSD only affects those with more than one mortgage (e.g. if you’re taking housing loans to buy more than 1 home), so if you’re simply upgrading, it will not affect you.
There may be overlaps (you may own 2 mortgages for a short period) when you’re buying/selling your new/old home, which is why in these cases, you can apply for an ABSD refund.
You will still be affected by the new LTV regulations though. Just like first-home homebuyers, you’ll need to fork out more money in cash or CPF for your down payment than before. If you don’t have that much cash/CPF floating around, you might have to go for an HDB housing loan.
5. What are the repercussions for en bloc sales?
If you’re staying in an old property and hoping to cash in on the en bloc trend… sorry, but you should probably put your en bloc dream on hold.
The new non-waivable 5% ABSD for developers is a significant sum once you consider the price of the entire land plot. Developers’ appetite for en bloc will definitely be reduced – it’s simply no longer as profitable to buy old properties en bloc.
This is because the pricing is very dependent on existing surrounding projects, so developers cannot simply pass on the cost to buyers. If they price it too high, buyers will turn to the resale market. If the projects don’t sell within 5 years of launch, there goes their 25% ABSD. Developers are unlikely to take that risk.
On the other hand, if your house was JUST sold en bloc, congrats! You’ve successfully siam-ed the cooling measures.
You’re probably the biggest winner in this whole exercise. If you need to move out of your old home and buy a new one, you probably can because you’re suddenly cash rich and can afford to pay the 25% cash/CPF downpayment for a bank loan.
If you don’t need to find a new place to stay, even better! Just sit your fat wad of money and wait for property prices to drop.
6. What if I’ve already paid off my existing properties?
The ABSD doesn’t actually affect those who have already paid for their houses in full. A common misconception is that ABSD is calculated based on how many homes you own. It’s not – it’s actually based on how many mortgages you have.
Correction: If you’ve already paid off your homes but want to buy a new property, you are affected by the ABSD increase but not the LTV limit.
As long as this is your one and only mortgage, your LTV limit is the same as that of a regular first-time buyer.
The cooling measures are meant to deter the average Joe from over-committing – i.e. taking on a second mortgage that they actually cannot afford. If all your properties are fully paid for, you don’t have to worry about a lower LTV limit on your next home purchase.
7. What’s going to happen to property prices now?
We’ve talked mostly about how the property cooling measures are meant to control private property price inflation. So, after the initial turbulence, private property prices should either remain the same, or fall.
However, there might be an unexpected side effect: resale HDB prices might rise. Since private properties are less affordable now, many home buyers would be driven to the HDB resale market. With the influx of demand, we can expect resale HDBs to get at least a little more expensive. Do with that prediction what you will.
8. Will the cooling measures affect my rental income?
If you’ve been making a killing renting out your Farrer Park condo to expats, gird yourself for lean times ahead. We predict that rental supply is likely to increase following the cooling measures.
Think about it. If you were planning to sell your investment home, you’re hardly going to do it now that everyone’s freaking out and property prices are falling. You’d rather hold and wait until prices go up, right? In the mean time, you’ll probably monetise your property by renting it out.
Multiply that by the number of investment homeowners in your area, and you’re looking at a boost in rental supply. In other words, it’ll be a tenant’s market – tenants get to be more picky and can drive rents down.
On the other hand, there might be more foreigners willing to rent than before. That’s because foreigners have to pay an extra 5% in ABSD to buy a home in Singapore, which makes it more economical to continue renting rather than purchase their own home.
9. Will banks raise or lower their loan interest rates?
Remember how we said that many first-time homebuyers will be forced to take HDB loans instead of bank loans? It seems logical for banks to lower their home loan interest rates to win them back.
But in reality, it’s not as simple as that. In general, banks’ interest rates are expected to go up. That’s because banks’ interest rates are ultimately dependent on the US Federal Reserve, which itself is expected to increase its interest rates. The banks will then pass on these “added costs” to you, the borrower.
What might happen, then, is that the property cooling measures might simply slow down an almost inevitable increase in interest rates.
10. Is there any change to TDSR?
Nope. The Total Debt Servicing Ratio (TDSR) is still 60% and unaffected by the cooling measures.
Introduced in 2013’s cooling measures exercise, the TDSR is meant to limit the amount of debt you can be in, as a ratio of your income. So if you’re making $1,000 a month, you should only be spending $600 on repaying debts. There is no change to TDSR with the 2018 cooling measures.
How are you affected by the property cooling measures? Share it with us in the comments below!