5 Things You Need To Know About The Latest Property Cooling Measures

After being subdued and on a decline for 4 long years, property prices in Singapore have finally begun to surge sharply by 9.1% since 3Q2017; demand for private homes has also been on the rise with transaction volumes reaching new heights – leading to a possible strong recovery.

But just when things started to look kind of rosy and promising for Singapore’s real estate market, the government has decided to put an end to this frenzy property spree.

Thus, on 05 July 2018 7 p.m. sharp, the Ministry of National Development (MND) made an official announcement on its website regarding the new set of property cooling measures, which were set to take effect on the following day (06 July 2018).

The intention? To ensure that property prices don’t run ahead of the nation’s economic fundamentals and increase the risk of having to correct it in a more destabilizing manner in future – especially when interest rates are rising and the huge amount of private housing supply down the road.

In order to give you a better understanding, here are 5 things which you need to know about the latest set of property cooling measures.

ABSD Rates Raised By 5 %-Points Across Most Tiers

The Additional Buyer’s Stamp Duty (ABSD) has been implemented since December 2011, and the first revision came just 13 months later (in January 2013). So after 4½ years, the government has decided to raise almost all tiers (except for first property purchases by Singapore Citizens and Permanent Residents) by 5 percentage points.

Here’s a quick overview of the history of ABSD rates and how they have evolved over 2 rounds of adjustment:

History of ABSD Rates Cooling Measures

However, there are certain situations in which buyers can apply for an ABSD remission – helping to save quite a hefty sum of capital outlay. So always check with your realtor, legal consultant or go to IRAS website to find out if you are eligible for that.

Property Developers ≠ Foreigners

Not only the ABSD rates have been revised upwards, something new has been implemented this time around – which is to have a clear distinction between foreigners and corporate entities (usually property developers) when comes to acquire a residential property in Singapore.

In the past, whether you are purchasing a residential property as a foreign individual or corporate entity, you will be required to pay the same amount of ABSD. After the new revision, foreigners will be liable to pay a 20% ABSD; corporate entities will pay 25% ABSD.

For property developers, that’s not the end of it. They will be required to fork out another 5% of ABSD (which makes it 30% in total) and this 5% will not be remissible. However, they can still apply for remission of the 25% ABSD paid, subject to approval and fulfilling of certain conditions as well.

So basically, if developers are paying more for their land acquisitions, it will eventually translate into extra cost from your pocket as a buyer (shucks!)

First Time Buyers Not Really Affected By ABSD

As you can see, it hasn’t been the government’s intent to tackle or make things difficult for Singapore citizens who are buying their very first residential property. Although they did make it a little trickier for the Permanent Residents (PRs) during the first ABSD revision back in 2013, I guess that’s just one of the advantages of holding onto that pink colored identity card.

Also do note that due to our free trade agreements with 5 countries – United States of America (USA), Norway, Iceland, Switzerland and Liechtenstein, their Nationals or PRs will be treated under the ABSD tier for Singapore Citizens. For the USA, only Nationals will be considered to have the same ABSD treatment as a Singapore Citizen.

Even as a Singapore Citizen buying a private residential home for the very first time, it doesn’t mean that the latest property cooling measures have entirely nothing to do with you. Read on and you’ll see.

Bigger Downpayments, Lesser Loan Amounts

Just a little more than a decade ago (in 2005), private home buyers were able to attain housing loans of up to a whopping 90% (of the property’s value) and only require a minimum downpayment of 10%. What’s even better for the 10% downpayment is that the minimum cash component is only 5% and the other 5% can be withdrawn from the funds in their CPF accounts.

Based on 90% LTV – To buy a $1 million-dollar property, the minimum cash required is $50,000 (exclusive of stamp duty) from your own pocket; another $50,000 from CPF and leverage on a mortgage loan of up to $900,000.

However, this 90% Loan-to-Value (LTV) limit only lasted till 20 February 2010 when MAS announced that it will be reduced to 80% – which eventually came to an end in the latest property cooling measure.

Right now, the LTV limits have been further lowered by 5 percentage points to 75% for all housing loans granted by financial institutions (FIs).

Based on 75% LTV – To buy a $1 million-dollar property, the minimum cash required is $50,000 (exclusive of stamp duty) from your own pocket; another $200,000 from CPF and leverage on a mortgage loan of up to $750,000.

Of course, the above scenario is only true after the FIs have put your financial status under ‘rigorous’ assessments – which includes the Total Debt Servicing Ratio (TDSR).

This adjustment will probably put off a small group of the younger generation of property buyers (especially those who haven’t been in the workforce for very long and thus do not have a lot of funds in their CPF accounts) and thus shifting their focus to other real estate segments.

No Problems For HDBs, Commercial or Industrial Properties

If you are planning to purchase a HDB flat, commercial or industrial property in Singapore, the latest cooling measures will be none of your concern – be it on the stamp duty or loan. In fact, the latest measures may act as a price catalyst for these segments in the real estate market.

HDB flats (public housing) are likely to be a much attractive option, especially for younger home buyers and those who have been displaced from their recent en bloc sale.

For instance, the younger generation of home buyers may be able to attain a housing loan of up to 90% (if the loan was taken from HDB itself) and some form of subsidies (such as housing grants or brand new discounted flats) from the government. Compared to buying a private home, this will be a much sensible option – financially.

As for the older group of home buyers, it definitely will make more money-sense to them in terms of price for per square foot of living space.

When it comes to using real estate as an investment vehicle, investors will probably set their sights on the non-residential segment in Singapore which will save them from the ABSD – which adds as a hefty additional cost to their investment capital. Not only there is no ABSD, commercial property investors will also not be affected by the Seller’s Stamp Duty or SSD (except for industrial properties), giving them more flexibility and control in managing their risks and invested funds.

If you would like to find out more or even have a chat with me on how these new property cooling measures could possibly affect the private residential property market, you can simply fill up the form below and we’ll schedule a time to discuss over coffee!

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