Whilst news of the probability of cooling measures being implemented surfaced back in July, many brushed it off as paranoia as it seems highly unlikely.
Our previous article on this exact topic (Read here: Are Cooling Measures Really Coming Your Way?) by lead consultant Alex JD predicted that there is a real chance for cooling measures to be implemented. Almost on the stroke of midnight on December 15th, the Government has released a package of measures intended to cool the private residential and HDB resale markets. (Official Press Release)
The news came almost completely out of left field and left many homebuyers and property agents shocked and reaching for their phones to lament on what this would mean for them.
When the news struck, we immediately got in contact with our founder Eugene Lin to learn more about his thoughts on this latest revelation, who on his end has already gotten hold of the news and received a flurry of panicked texts from fellow industry partners.
Over a phone call with Eugene, we asked him about his thoughts regarding this cooling measure.
“One thing I’ve always stood by and advocated since day 1 of joining this industry is the importance of properly restructuring your property portfolio. While owning lots of properties may seem like the ultimate goal, if you are not making correct use of them, it might become more of a liability than an asset.“
For that reason, Eugene has always made it a point to educate his buyers on what proper restructuring of portfolio can do for them, and then assist them in making the best choices. Due to this fact, most of his clients are not affected by the release of these cooling measures.
One might wonder: What could have caused the Government to implement cooling measures in 2021? Other than the analysis that Alex JD has previously done in our past cooling measures article, Eugene also mentioned “I think it is also due to many en blocs that happened and the record prices that could end up spiraling way beyond the means of many who are impacted by it".
Without further ado, let us dive into the subject and how it would affect you as a current/future homebuyer.
Despite the pandemic, the property market has remained extremely buoyant, with record breaking sales and a higher-than-expected increase in transaction volume. Interestingly enough, this has also led to higher debt incurred by households who wanted to capitalize on this trend.
Developers are also rushing to acquire land for future inventory due to the lack of supply despite recent government land sales, alongside an aggressive en bloc market happening right now.
Needless to say, the Government has always been keeping a close eye on the market. The clear upward momentum like private housing rising by 9% since 2020 then led them to introduce this set of cooling measures in the hope to continue promoting housing affordability.
“If left unchecked, prices could run ahead of economic fundamentals, and raise the risk of a destabilizing correction later on. Borrowers would also be vulnerable to a possible rise in interest rates in the coming years.” - MND
First and foremost, one of the biggest changes has to be the increase in Additional Buyer’s Stamp Duty (ABSD) rates. Following the table above, Singaporeans (SCs) and Permanent Residents (PRs) who own more than one property will be largely affected, especially PRs who own 3 or more properties where the rates are doubled from 15% to 30%.
Other than foreigners, rates for those who only own 1 property would remain the same, at 0% for SCs and 5% for PRs.
Those who recently purchased their properties or are in the midst of deciding might be concerned and confused about where they stand during this change. This set of revised rates will apply to those who have their Option to Purchase (OTP) granted on or after 16th December 2021.
Transitional provision of ABSD rates prior to 16th December will apply for special cases who meet a set of conditions:
The threshold for the Total Debt Servicing Ratio Threshold (TDSR) will go from 60% to 55%, and is applicable towards loans for purchasing of property and mortgage equity withdrawal loan applications on or after 16th December 2021.
Those that have existing loans that were granted before this date will not be affected by this change when they are refinancing their loans.
The only measure specifically for public housing would be the Loan-to-Value (LTV) going from 90% to 85%. Similarly, this change will only be applicable for new flat/resale applications that are launched and received respectively from 16th December 2021 onwards.
Case Study 1 (TDSR)
Let’s take a look at how the revised TDSR will affect you as a homebuyer. Imagine a scenario where you are purchasing a S$1.5m property:
With the old TDSR rate of 60%, the total household income needed to qualify for this loan will be $8,420.
With the new TDSR rate of 55%, the total household income needed to qualify for this loan will be $9,185 - coming to a difference of $765 between the two scenarios.
While this might not be a huge impact for most, those who barely qualify for the amount that the older rate brings will most definitely feel this change.
Case Study 2 (TDSR)
Next, imagine we have a household income of $10,000 alongside a 30 year loan tenure. When you try to work out the maximum loan amount, you will find that the highest amount you can afford to spend on your property decreases, and the ‘slight’ drop of 5% comes out to be almost a $100,000 difference in loan amount!
Case Study 3 (ABSD)
Last but not least, let’s see how the revised ABSD will affect you (assuming the price of the property is S$1,000,000):
Funny how actually seeing the number of zeroes really gives you the idea of how much this change will impact you, right? Although 5 or 10 percent can look and sound like ‘small numbers’, when applied to a property that costs at least a million dollars really shows how substantial it really is.
Even with the smallest increase of 5%, we can see in the table above that it works out to be a $50,000 difference. Imagine the other items you could’ve spent the amount on!
Of course, all these are steps taken by the Government in a continuous effort to ensure that housing in a land-scarce country like Singapore remains stable and sustainable.
The silver lining is that those who are genuinely looking for owner occupation are not as affected compared to those who are purchasing residential properties for investment purposes.
Of course, that is not to say that people who are looking to purchase more than 1 property should stop in their tracks. By being able to identify the best options that matches your property needs, there is still great potential in making good returns in a small and land scarce country like Singapore.
The sudden announcement of the implementation of cooling measures must have left many dismayed - and those who were on the verge of purchasing a property but didn’t must also be feeling anguished right now.
Even though this largely seems to be pure bad news, it is crucial to understand that if the property market were to continue in its upward trend without any measures, the prices of housing can skyrocket to new heights and make it even harder or impossible for one to own their first, second or third housing.
On a side note, it is also mentioned in the press release that the Government will be increasing housing supply (both public and private) in order to meet the escalating housing demand.
At this point in time, details are not released yet - do check back in as this article will be updated once more information is made known.
If you are one of many that will be affected by the cooling measures or you are looking to purchase more than one property, do reach out to us if you need any guidance in making the most informed choice.