The higher ABSD aims to moderate the demand from those who wish to purchase investment properties, while tighter loan limits aim to encourage “greater financial prudence” among home buyers.
The Government has “carefully considered” the scope and timing of the new property cooling measures, reported Channel News Asia (CNA) citing National Development Minister Desmond Lee.
The minister explained that the measures – which include higher Additional Buyer’s Stamp Duties (ABSD), tighter Loan-to-Value (LTV) limits and lower Total Debt Servicing Ratios (TDSR) – are necessary to reduce the risk of a “destabilising correction” in prices, which would affect many households.
“While there is continuing uncertainty created by COVID-19, we have decided to move now to reduce the risk of a self-reinforcing cycle of price increases in the private and HDB resale markets, that will impact housing affordability,” said Lee as quoted by CNA.
Since the first quarter of 2020, HDB resale prices and private home prices have considerably increased despite the economic impact of the COVID-19 pandemic, he said.
As such, the House Price to Income (HPI) ratio in both the HDB resale and private home markets have been on the uptrend, albeit they remain below their historical averages. Notably, the HPI measures housing affordability.
“In particular, HPI for HDB resale flats reached 4.4 times in the first three quarters of 2021, which is well below its level a decade ago. However, it is now on a clear upward trend,” said Lee.
Moreover, demand and transaction volumes for Build-To-Order (BTO) flats have been high due to factors like the “very low” interest rate environment, shrinking household sizes and recent disruptions to construction work.
Lee noted that all these created a “clear upward market momentum in prices and transaction volumes”, despite near-term uncertainty on the pandemic following the emergence of the Omicron variant.
“Left unchecked, prices are likely to run ahead of economic fundamentals. This will increase the risk of a destabilising correction later on that will hurt many households.”
With major central banks looking to tighten monetary policy, borrowers may also be vulnerable to the likely hike in interest rates within the next year and beyond.
“A combination of rising prices and higher interest rates will risk a significant increase in debt servicing costs for future buyers,” said Lee.
The new measures will thus help support a “stable and sustainable property market in the medium term”, while ensuring that housing remains affordable for Singaporeans.
The higher ABSD rates, for instance, will moderate demand coming from those buying properties for investment, he said.
The tighter TDSR threshold will also “encourage greater financial prudence among home buyers, providing an additional buffer against potential income reductions or interest rate increases”.
He does not expect the TDSR threshold adjustment to affect most borrowers purchasing HDB flats since around 97% of such borrowers have TDSRs of less than 55%.
Meanwhile, the tightened LTV limits will “encourage greater financial prudence” among buyers within the public housing market.
Lee explained that the move is not expected to significantly affect first-time buyers, particularly for lower- to middle-income families since these households purchasing an HDB resale flat can get “generous grants” as well as use their Central Provident Fund (CPF) savings upfront to pay for the unit.
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Cheryl Chiew, Digital Content Specialist at PropertyGuru, edited this story. To contact her about this story, email: cheryl@propertyguru.com.sg.
