After many quarters of increasing property prices, the government has stepped in to cool the red-hot property market. In spite of (and due to) the pandemic, the property market in Singapore has been on a rise. Private property prices have risen about 9% since 1Q2020, while HDB resale prices have risen about 15% since 1Q2020. This demand for housing has also been fuelled by the current low-interest rate environment.
In order to promote continued housing affordability and to prevent prices from running ahead of economic fundamentals and reduce the risk of a destabilising correction, the government is implementing measures to cool both the private and public housing market.
With immediate effect from 16 December 2021, Additional Buyer’s Stamp Duty (ABSD) rates will be raised, the Total Debt Servicing Ratio (TDSR) threshold will be tightened) and the Loan-to-Value (LTV) limit for HDB home loans.
Here are the new property cooling measures that potential home buyers need to know.
#1 Additional Buyer’s Stamp Duty (ABSD) Increase By 5% to 15% For Second And Subsequent Residential Properties
The Buyer’s Stamp Duty for Singapore Citizens (SCs) and Singapore Permanent Residents (SPRs) buying their first residential property will remain the same at 0% and 5% respectively.
However, the ABSD for second and subsequent residential properties will be increased by 5% to 15% for the different categories. Singapore Citizens buying their second property will incur 17% ABSD, an increase of 5% and 25% ABSD for their third and subsequent property. Permanent Residents will incur 25% ABSD, an increase of 10%, for their second property and 30% ABSD, an increase of 15% for their third and subsequent property. Foreigners will incur 30% ABSD for all their residential property purchases, an increase of 10%. These ABSD increases are intended to dampen the demand from those who are buying property for investment, instead of owner-occupation.
For parties who are jointly buying a residential property, the higher ABSD rate will apply. For example, if a couple who comprise a Singapore Citizen and a SPR jointly purchase a condominium as their second investment property, they would incur the 25%, not the 17% ABSD. They can continue to apply for ABSD remission, subject to conditions including selling their first residential property within 6 months after buying their second property if it is already completed.
These ABSD rates will apply when the Option to Purchase (OTP) is granted on or after 16 December 2021.
#2 There Is A Transitional Provision For ABSD Rates Before 16 December 2021
As the ABSD rates are increased with immediate effect, there is a transitional provision for some cases to still be eligible for the old ABSD rates (before 16 December 2021 rates).
In order for the old ABSD rates to apply, the OTP must be granted by the sellers to potential buyers on or before 15 December, the buyer must exercise the OTP on or before 5 January 2022 or within the OTP validity period (whichever is earlier) and the OTP must not be varied on or after 16 December 2021.
This would allow sellers and buyers who have already made an agreement to continue their transaction. As the OTP cannot be varied on or after 16 December, buyers cannot renegotiate the price if they want to retain the old ABSD rates.
#3 Total Debt Servicing Ratio (TDSR) Tightened To 55%
To encourage greater financial prudence, the TDSR is tightened by 5% from 60% to 55%. This will apply for loans for purchase of properties where the OTP is granted on or after 16 December 2021. Mortgage equity withdrawal loan applications made on or after 16 December will also be subject to the revised TDSR of 55%.
For potential home buyers, this can mean a difference in the property they can afford. For a couple earning a household salary of $6,000, their TDSR cannot exceed $3,300. This means that their maximum monthly installment is $3,300, assuming they have no other debt obligations (like car loans, student loans, etc). Based on this, with an interest rate of 2.6% and a loan tenure of 25 years, their maximum loan amount would be $727,402.
If they qualify under the old TSDR of 60%, their maximum monthly installment would be $3,600. Assuming the same conditions, their maximum loan amount would be $793,529. This is a difference of almost $70,000.
If you have been issued an OTP dated on or before 15 December, you would qualify under the old TDSR threshold of 60%.
If you are a borrower with an existing property loan granted before 16 December 2021, you will not be affected by the new TDSR. The TSDR is currently waived for refinancing owner-occupied loans. For those refinancing existing investment property loans, there is a temporary TDSR waiver for borrowers affected by COVID-19. Otherwise, the previous 60% TSDR will apply.
#4 The Loan-to-Value (LTV) Limit Tightened By 5%
Specifically for HDB housing loans issued by HDB, the LTV limit is tightened by 5% from 90% to 85%. This 85% LTV limit will apply for new flat applications for sales exercises launched after 16 December 2021 and complete resale applications received by HDB from 16 December 2021. This means that BTO buyers for the November 2021 BTO and SBF exercises will fall under the 90% LTV.
HDB qualifies complete resale applications as those where both the sellers’ and buyers’ portion of the resale application are received by HDB. If you happen to be in the process of making a resale application but either the buyers or the sellers have yet to submit their portions, you would be subject to the new LTV limits.
The LTV limit for loans issued by banks remains at 75%.
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