8 Questions Answered On Singapore’s Latest Cooling Measures
As of 16th December 2021, new property cooling measures were introduced and implemented immediately. Two main objectives: To promote a sustainable and stable property market and ensure affordability in home prices relative to the public's income trend.
WHAT ARE THE NEW CHANGES?
In summary:
Source: MND Singapore
The following questions will expound further on the measures.?
HOW WILL THE MARKET CHANGE WITH THE ABSD INCREASE?
The main pool of people affected by this increase will be the foreign buyers and entities. This is likely due to the previous expectations that more foreign buyers would enter the real estate market and drive prices up as borders open. Therefore, foreigners and entities looking to purchase a property in Singapore will now face a higher barrier to entry. The motive is to prevent further speculation from overseas influence.
Similarly, Singaporean or PR buyers are multi-property buyers and, unfazed by the previous ABSD, will now have to reconsider their investment horizons given the increase in duties.?
With the higher entry barrier, first-time Singaporean and PR will face reduced competition in the market. Coupled with the TDSR, we can expect more competitive property pricing as a serious seller may face lesser demand in the market.
Some first-time buyers can consider looking into projects in the Core Central Region (CCR) where foreigners were previously vested in. Developers in this region may also consider a different marketing strategy and pricing since their market focus will change.
WHAT IS TDSR, AND HOW WILL THIS AFFECT ME?
Total Debt Servicing Ratio (TDSR) forms a threshold on how much a buyer can loan for their purchase based on their gross monthly income. Starting from 16th December 2021, TDSR is capped at 55%.
Below is the calculation and new estimated loan amount based on the gross monthly income of S$5,000 and S$10,000.
Estimated TDSR threshold calculation based on S$5,000 and S$10,000 gross monthly income
Assume if property prices remain constant, the difference in loan amount eligibility will mean that buyers either fork out more cash or give up the purchase.? As mentioned above, this also means that sellers will have to consider their pricing strategy since the bullish trend may slow down with this new limit.
While many buyers may not reach the 60% TDSR previously, the government did notice the increase in household debt. The total value of household debt grew by 6.8 per cent over the past year. The main driver of the recent household debt increase was the attractive loan interest rates and housing demand.? While we are still out of danger, this can cause a severe dent in the economy if not managed today. The USA subprime mortgage crisis in 2009 was a lesson to everyone and something not to be repeated.
WHY ARE THEY REDUCING THE LTV FOR HDB?
One of my best guesses here would be to control the HDB resale prices by mitigating the impulse of high cash-over-valuation (COV) purchases. The recent increase in million-dollar HDB flats purchases has shown that buyers can fork out more cash to cover the market valuation. So instead of paying more money on COV, this measure redirects it to cover the shortfall of the loan to value at 85%.
The decrease in 5% LTV means that for a S$500,000 flat, buyers are required an additional S$25,000 cash (or CPF).
There are doubts if this measure will impact the market as there are growing numbers of buyers opting for private bank loans instead (LTV 75%) and are not affected by this. As for the other buyers who could use the 5% LTV to make the difference, they might need to shift their focus away from the resale market.
But rest assured that the government has announced increasing HDB BTO supplies by 35% for the next two years. We also expect more HDB flats supplies that reach their minimum occupation period (MOP) in 2022. Hopefully, these will help make HBB flats affordable despite the decreased LTV.
Expected supply of HDB Unis that will reach MOP
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Source: Data.sg, HDB
WHY WAS THIS MEASURE INTRODUCED AND IMPLEMENTED SO SUDDENLY?
In 2013, a cooling measure involving ABSD was introduced in the early evening of 11th January and implemented the next day. This gave rise to a buying frenzy that night where buyers rushed in to make their last multi-property dream come true before ABSD shuts it down. Show flats remained open to the wee hours to cater for these purchases.
Fast forward to today, the government wants to prevent the same last-minute speculation from happening. Thus, releasing this news only at 11:40 pm, hardly any actions can be taken within the 20 minutes.?
WILL PROPERTY PRICES GO DOWN?
If the supply and demand remain imbalanced, property prices will continue to rise. The new measures will only "cool" the market and make buyers reconsider their purchases. While the government announced introducing supplies into the market, such as HDB BTOs and land sales, these require time for construction and development. The recent land bid prices are also finalised, and the increase in property prices are set in motion.
Reference: Government to increase BTO, GLS programme supply together with cooling measures
Nevertheless, we can still expect this increment to slow and be more gradual, sticking to the planned 3-7% growth. This has been the observed range that the government has stuck to for many years and deemed sustainable growth. This time, the cooling measure was implemented because the recent prices increased beyond 8%.
Private Residential Property Growth Trend (Illustration Purpose Only; Not Accurate to Scale)
Source: Edgeprop Analytics, URA, MND, MAS, Morgan Stanley Research
WILL THIS COOLING MEASURE LAST?
There is no definite answer now. However, based on observation, most of the cooling measures from 2013 to 2018 were not lifted. In fact, these new measures are additional consequences to the current regulation. However, I believe that the market will find its way to adjust accordingly and operate under the new norm.
How property prices will always get back on track and increase overtime
Source: Propnex, URA
WHAT SHOULD I DO NOW?
If you are planning a property move in 2022, don't worry. Here are a couple of things you can start with:
1.?????? Obtain a new in-principle approval (IPA)
With the revised TDSR, check with your banker on your revised loan eligibility.
2.?????? Review your financial calculation based on the new measures
This ensures you do not fall into any pitfalls due to the changes, especially with the revised TDSR and HDB LTV. If you're selling, review your market expectation on your property asking price.
3.?????? Review your expenditure
If you're considering buying, review your expenditure and reduce any outstanding loan if possible. This will help with your loan eligibility based on the revised TDSR.
If you like to further understand the market and how this affects you directly, contact me today for a discussion.