HDB Buyers & Upgraders: Two Unintended Groups Who Could Be Affected By The Latest Property Cooling Measures

On 15 December, the government announced property cooling measures to cool the red-hot property market. Since 1Q2020, private property prices have risen about 9%, while HDB resale prices have gone up by about 15%.

These measures, which took effect from 16 December 2021, included 1) an increase in Additional Buyer’s Stamp Duty (ABSD) of between 5% to 15%, 2) tightening of the Total Debt Servicing Ratio (TDSR) threshold from 60% to 55% and 3) reduction of the Loan-To-Value (LTV) limit for HDB housing loans from 90% to 85%.

While these measures were meant to curb speculation and overborrowing, particularly for those looking to invest in properties, HDB home buyers or upgraders could also find themselves affected in some ways – though they were not the intended target of these measures.

Property Cooling Measures Mean HDB Home Buyers Have To Make Higher Upfront Downpayment Of At Least 15% Of Property Price

Typically, many first-time HDB home buyers would take an HDB housing loan that allows them to (previously) borrow up to 90% of the purchase price or valuation of their HDB flat, whichever is lower. This means they pay a downpayment of 10%, all of which can be paid for using their CPFOA.

Moving forward, however, the reduction of the Loan-To-Value (LTV) limit for HDB housing loans from 90% to 85% would translate into a higher downpayment needed. For example, an HDB resale flat with a valuation of $500,000 would require a minimum downpayment of $75,000 (15% of $500,000), up from $50,000 previously.

Maximum Amount That Property Owners Can Borrow Will Be Reduced

Beyond just ensuring they have enough to pay the higher minimum downpayment requirement of 15%, HDB buyers must ensure they don’t exceed the TDSR threshold. TDSR stipulates the maximum percentage of our monthly income that can be used to service all our loan obligations across financial institutions, including credit card debt (including interest-free instalments), student loans, car loans, and existing mortgages.

Previously, the TDSR threshold was 60%. Moving forward, it has been reduced to 55%.

When you consider both the reduction of the LTV limit for HDB housing loans and the reduction of TDSR, here’s how it could impact an average Singaporean family looking to make an HDB purchasing decision.

Combined monthly salary of the couple: $5,000 a month

HDB resale flat they are hoping to purchase: $500,000.

Existing monthly loan repayment couple already has: $1,000

Given the new TDSR threshold, the couple will only be able to service loan obligations of up to $2,750 per month (55% of $5,000). Since they already have a monthly loan repayment of $1,000, they can only take up a housing loan with a mortgage repayment not exceeding $1,750 per month.

Combined monthly income	$5,000
TDSR Threshold	$2,750 (55% of monthly income)
Existing loan repayments	$1,000
Remaining amount	$1,750

Assuming they wish to purchase an HDB flat that costs $500,000, the minimum down payment needed will be $75,000, which means they can take an HDB housing loan of $425,000, with an interest rate of 2.6% p.a. over 25 years. Such a loan will translate into a monthly mortgage payment of $1,928, which exceeds the TDSR threshold for the couple. This means the couple needs to borrow less by opting for a higher downpayment or to purchase a cheaper HDB flat.

Editor’s Note: Do note that buyers of HDB flats or Executive Condominiums that are sill within the MOP can’t exceed the Mortgage Service Ratio (MSR) of 30% of gross monthly combined income. Such buyers have to ensure they meet both the MSR and TDSR thresholds, and not just TDSR or MSR.

HDB Owners Upgrading To A Private Property Are Affected As Well

Upgrading their property is a genuine desire for many Singaporeans and going from public to private housing is one of the aspirations some Singaporean families may have.

For those who intend to upgrade to a private property, we can sell our existing HDB flat first before purchasing a private property, or to buy a private property first before we sell our existing HDB flat. If we decide to choose the latter, we must pay ABSD (first).

One aspect of ABSD that is typically overlooked is that even for buyers who don’t intend to own two properties, as they intend to sell their existing HDB flat within 6 months after buying their private property, they will still need to pay ABSD first. So, while they would eventually get their ABSD amount back after selling their HDB flat, a hefty amount would still need to be paid first in cash for ABSD when purchasing a private property before selling the existing HDB flat.

Read Also: Additional Buyer’s Stamp Duty (ABSD): How Much You Have To Pay To Own Multiple Properties & 5 Ways To Avoid ABSD

With the new cooling measure, Singapore citizen buying their second residential property will pay an ABSD of 17%. This is higher for PRs (25%) and foreigners (30%).

Source: MND

For example, a Singapore buyer purchasing a private property for $1,000,000 before selling the existing HDB flat (or any other property) will need to pay an ABSD of $170,000 in cash (17% of $1,000,000), up from $120,000 previously. This is in addition to the Buyer Stamp Duty (BSD) of $24,600, their option-to-purchase (OTP) of 1% ($10,000) and the remaining 4% to exercise their option ($40,000). In total, they will need a cash outlay of at least $244,600 to purchase a $1 million private property. Do note they still need to pay the remaining down payment of $200,000 (20% of $1,000,000) in cash or CPF.

In total, you are looking at an upfront cost of $444,600, of which at least $244,600 would need to be paid for using cash.

While the ABSD ($170,000 in our example) can be refunded upon the sale of their existing HDB flat (or any other private property) within 6 months, the point here is that buyers still need to have the cash first to complete the transaction.

Of course, the alternative to avoid ABSD in the first place is to sell our existing property before purchasing our private property. However, there are also some challenges with that particularly during the pandemic where it could be very inconvenient for families if they need to move out of their existing home without their new place being ready yet.

Read Also: 4 Reasons Why You Should You Sell Your Existing Property First Before Buying A New One

While the latest cooling measures were not meant to make it harder for first-time homeowners to buy an HDB flat, or for existing property owners to upgrade from their existing homes, anyone who falls into any of these two categories should bear in mind how they could be affected by the latest measures and to calculate the sum they need to purchase the ideal properties they want.

Top photo by Moo Kar Ming, DollarsAndSense

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