Photo: ZR Lin
Photo: ZR Lin
November 16, 2022

With rising property prices and transaction volume, the latest wave of cooling measures were implemented on 30 September 2022, just shy of a year after the previous round back in December 2021. Set out to further ensure prudent borrowing amidst rising interest rates, how will these latest measures affect residents in decision making and how far will it impact developers on their decision for redevelopment?

Featured in 
Property Insights
 by 
Wendy Ker

The introduction of cooling measures late last year provided strong headwinds with the increase of additional buyer’s stamp duty (ABSD), succeeding in a brief let-up in not only the buying and selling of homes, but also keeping developers on their toes in regards to launching any new project.

However, the lull in activity did not last long. Home sales and new launches gradually picked up as the second quarter rolled around; by this year, fresh launches achieved record levels, crossing S$2,000 per square foot mark. Outside of the central region, some launches that performed especially well included the AMO Residence and GuocoLand's Lentor Modern. 

A joint private residential project between developers UOL Group, Singapore Land Group and Kheng Leong Company, AMO residence sold over 98% of its units during its launch, leaving just 7 units left unsold after the first day. In that same note, GuocoLand’s Lentor Modern sold approximately 84% of its units on its launch weekend, accounting for 508 units out of 605 units. These developments enjoyed strong demand despite the string of cooling measures implemented last December 2021, alongside higher interest rates for mortgages. 

The property market also sees an increasing number of HDB resale transactions above the S$1 million mark - in fact, the prices for resale flats have been on an upwards trend for the 27th straight month in September, with a record 45 units transacted above S$1 million just in that month alone. However, as the prices for HDB resales inch up, the volume of transactions fell by 24.1% the next month in October. This rounded up to approximately 1,965 transactions in that month alone, which is the lowest resale volume recorded in the month of October since 2017.  

What does the latest cooling measures entail?

As the number of borrowers increase, interest rates follow suit naturally and are likely to increase further in the future, ultimately affecting borrowing costs for home purchases. 

In order to calculate a borrower’s total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR),  higher interest rates will be used when assessing borrowers’ repayment ability. This is then split into two different types of loans: property loans granted by private financial institutions OR HDB housing loans.

Property loans granted by private financial institutions

The medium term interest rate floor used to calculate TDSR and MSR will be raised by 0.5% by MAS, and applies to loans that were granted Option to Purchase (OTP) on or after 30 September 2022 (date of Sale and Purchase Agreement will be used in the event there are no OTP).

Private financial institutions will continue to determine the actual interest rates charged for mortgages.

The table below offers a swift overview of the new medium interest rates:

Credits: MAS. *The thereafter interest rate is the highest possible interest rate applicable during the tenure of a property loan, excluding introductory or promotional rates.
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Housing loans granted by HDB

An interest rate floor of 3% will be introduced by MAS in order to calculate the eligible loan amount. Similarly, this applies to fresh applications for HDB Loan Eligibility (HLE) letters received on or after the magic date, 30 September 2022.

HLE applications that were received before this date will not be affected by this new interest rate floor, and the actual HDB concessionary interest rate will be reviewed quarterly, continuing to be pegged at 0.1%-point above prevailing CPF OA interest rate, remaining at 2.6% p.a. Till 31 December 2022.

Loan-to-Value (LTV) limit lowered

Next, MAS has also announced that the Loan-to-Value (LTV) limit for HDB housing loans is now lowered from 85% to 80%. Similarly, this lower limit will apply to new flat applications for sale exercises launched and complete resale applications received by HDB on and after 30 September 2022. 

With all that is said and done, this means that new homebuyers are now required to fork out a higher down payment when purchasing their dream home. With the previous rate, homebuyers are able to borrow up to 85% and pay a down payment of 15%, also payable using CPF OA. The latest round of measures will require homebuyers to pay at least 20% upfront - a HDB resale flat with a valuation of S$400,000 will now require the minimum downpayment of S$80,000 (up from the previous S$60,000).

How would lower LTV affect you?

Take for example a young couple with no kids, looking to buy their first home. While there are still substantial housing grants up to S$80,000 when buying a subsidized flat straight from HDB/up to S$160,000 when buying a resale flat, the new LTV limit might still prove to be a tough challenge. 

They might then have to ask themselves: Should they still consider moving forward with a HDB? Or would a condo, which offers a better investment, be the prudent way out? 

Similarly, financially challenged families will most definitely feel the burn with this newest measure. The fact of the matter is while housing grants may seem to offer an attractive amount to offset, at the end of the day it is not always easy and/or possible to be granted the highest quota.

Wait-out period of 15 months imposed

The final set of measures to round this up would be the implementation of a wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs before they are eligible to purchase a non-subsidized resale flat. This was updated from the previous guideline where PPOs and ex-PPOs were able to purchase non-subsidized HDB resale flats on the open market as long as their private properties were disposed of within six months after buying the HDB flat.

The previous measure resulted in a more competitive resale market, as cash-rich private property owners were able to immediately buy a resale flat from their proceeds. With the new wait-out period, owners now have to seek alternatives after the sale of their private property. What might come as a relief though is the fact that this is only a temporary measure, and will be reviewed and updated accordingly depending on market changes.

It is also important to note that the wait-out period for PPOs who are first timers looking to apply for the CPF Housing Grant and Enhanced CPF Housing Grant for their resale flat purchase remains unchanged, at 30 months.

How will the wait-out period affect you?

PPOs who are in the midst of downgrading will feel the most impact from this set of measures. There have been multiple cases now where homeowners are at a loss as they now have to account for at least 15 months of accommodations before they are able to move into their new housing.

Interestingly enough, one man’s loss is another man’s gain; while this will dampen the resale market, ‘the long wait-out period will support rentals for both private and public housing even when new home supply increases next year,’ says Ms Tricia Song, CBRE’s head of research for South East Asia, as homeowners search for alternatives. 

For seniors above 55 years old, here is a piece of good news: in order to support their retirement, this wait-out period will not apply to them or their spouses if/when they choose to downgrade. In addition, PPOs and ex-PPOs with extenuating circumstances may approach HDB for assistance, which will be assessed on a case-by-case basis.

Since the implementation of this wait-out period, HDB has received around 650 appeals so far, out of which around 220 private property downgraders have been successful as they had obtained an option to purchase for HDB resale flats prior to September 30 when the cooling measures took effect.

Part of the remaining 430 appeals consists of those who have already committed to selling/have recently sold their private property and others; these appeals will then have to be assessed on a case-by-case basis as it is not as straightforward as the prior group.

Could the rental market be affected?

With the expectation of the rental market benefiting from the wait-out period, one might wonder if it is possible for new measures to be introduced for the rental market specifically after some time has passed. If this were to be the case, it could prove to be yet another roadblock PPOs and ex-PPOs have to conquer in their bid for selling and buying homes.

While many may still think that renting a home is a waste of money as compared to simply purchasing a home, this is not always the case. It is simple and straightforward if you only consider the usual route one tends to take - get married, buy a HDB BTO flat (for example), and then sell the flat off at a profit during a later stage in life. However, life is not always so predictable.

For instance, singles are not able to purchase their own BTOs, unless it is a 2-room flexi HDB BTO flat in a non-mature estate. Most of the time, they would have to resort to renting a home. Similarly, married couples who do not qualify for the Parenthood Provisional Housing Scheme whilst awaiting their BTOs or private property owners serving the 15 months provisional period in this latest round of cooling measures will more than likely have to turn to the rental market.

In this case, rental homes are not only NOT a waste of money but also essential. One has to consider that it is not always possible to live in parents’ or relatives’ homes; even if there is no family tension at home, with the increase of people having to work from home it is not always conducive to do so, especially with a large family.

In these cases, moving out not only helps with productivity, but can also be taken as an investment in your own mental well-being and might even help with personal development as you have to be incharge of your everyday life now instead of depending on your parents.

How would these cooling measures affect the property market on a whole?

To accommodate for the highs and lows of the property market, measures and policies are introduced and reviewed from time to time in order to ensure they remain relevant. With the upward trend in recent months, the current implementation definitely helps curb sudden spikes such as in HDB resale transactions, which may serve to help keep housing more affordable in the long run.

However, the continuation of such measures in the long run will inadvertently alter the property market and buyers’ decision making processes. Take for example the wait-out period: if it were to be permanent instead of temporary, it could dissuade many homeowners in their bid for selling and buying homes, as the long period of time in between could prove to be too much of a hassle. This could then leave a permanent mark in the market that might take a while to reverse.

Depending on your needs, the wait-and-see tactic might be an option as the property market starts to slow down and ideally lessen the amount of S$1 million transacted HDB resale flats, opening up the possibility of decrease in interest rates and prices as time goes by.

However, this might not always be the case as we can see from past examples. Back in December 2021 after the next most recent set of cooling measures which did its job in slowing down the property market, momentum can return swiftly despite tighter limits and increased prices.  

While you can be your own judge, it never hurts to have a fresh pair of eyes and perspective to help you navigate this new set of changes. We would love to hear your thoughts and assist you with any questions or concerns you might have - feel free to reach out to us via the ‘Contact’ tab.

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