How Do The New Cooling Measures Affect Me?
On Dec 16 2021, at 1130pm, the government released island-wide news announcing the new cooling measures would be implemented effective the next day. Everyone was caught off guard, but, was it really a surprise?
New Cooling Measures
Tightening of TDSR
- Tightened 5% points from 60% to 55%
- New mortgages cannot cause borrowers total monthly loan repayment to exceed 55% of monthly income
- TDSR threshold for refinancing existing property loans granted before 16 Dec 2021 remains at 60%
Reduced LTV limit for HDB loans from 90% - 85%
- Reduces the maximum amount potential homebuyers can borrow from HDB
- LTV limit for loans obtained from financial institutions to purchase HDB flats remain unchanged at 75%
Higher ABSD Rates
- ABSD rates for first property purchase by Singapore Citizens and Permanent Residents will remain unchanged at 0% and 5% respectively
Cooling measures seek to ensure affordability and sustainability in price growth, relative to wage and economic growth.
The measures are a slight tightening of existing policies and not brand new policies. It will slow the growth but not cause a strong downward pressure in prices, unlike in 2013 where new frameworks like TDSR/MSR were introduced.
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"A sustainable property market" and "increase in housing prices relative to income trends" is what the government seeks to achieve. Damaging the market mid to long term is not in their best interest.
The reduction of TDSR threshold from 60% to 55% will result in an 8.33% decrease in loan eligibility for a 30 year loan tenure.
- For condo buyers previously limited by their loan eligibility, they might have to downgrade by 1 sub-tier in layout within the same condo they are considering eg: from 2Bed2Bath to 2Bed1Bath, or 2Bed1Bath to 1BR+Study
- For condo buyers previously limited by downpayment, with an excess of 8.33% in loan eligibility, there is no change in affordability as LTV for private property remains at 75%
- Impact is not huge because the increased income required for this 5 point reduction is not massive
Based on 30 years loan tenure, for $1M loan
* 60% TDSR: $7485 income required
* 55% TDSR: $8166 income required
* Difference in income required: Only $681 for every $1M loan
Inflation is still rising, interest rates are still low and new home supply remains low. Primce movement will heavily depend on monetary policy (speed of rate hikes) and unemployment levels (currently recovering)
Developers (entities) will now have to pay an additional 10% remittable ABSD upfront, which might deter them from triggering GLS land plots on the reserved list. This will inevitably result in further supply shortages and cause an upward pressure in prices
- Developer interest in ongoing en-bloc tenders might be negatively affected, as they hold back to weigh the significance of an additional 10% capital required upfront
- With this increased risk, developers developers might avoid larger land plots so they can meet the 5 year timeline, so this will put a slow on enbloc for larger land plots
- Government will be increasing land supply for both private and public housing, so we will see more GLS lands being released over the course of time
A good and high demand layout, close proximity to MRT and convenience (near amenities, malls, schools) are key factors to look out for to ensure your property holds its value in times of uncertainty.
For sellers previously expecting a very high cash-over-valuation on their property sale, expectations should be adjusted to ensure their main pool of buyers are not priced out due to decreased affordability.
Ultimately, these measures were introduced so that it would dampen demand for properties that were purely investment driven, paving the way for more owner-occupied purchases, so that Singapore citizens/ residents would be able to continue to afford residential property purchases in the current climate.
