On 15 Dec 2021, the government suddenly dropped an announcement that new Singapore property cooling measures would be implemented the next day. This comes as a surprise, to put it lightly.
In our Property Market Outlook 2022 report, we mentioned that property transaction volumes and prices would be likely to continue rising for all property types. But with MAS’ stance of the property market not being overheated in June warnings and some predictions regarding potential new cooling measures, we thought that cooling measures would probably not be necessary.
The cooling measures kicked in on 16 December 2021, less than an hour after the government’s late-night announcement on 15 December, and will affect residential property transactions on both the HDB and private property markets.
They include an Additional Buyer’s Stamp Duty (ABSD) hike, lower Loan-To-Value (LTV) limits and tighter Total Debt Servicing Ratio (TDSR) threshold.
In this article, we’ll deep dive into the changes, what you need to look out for and discuss what possibly triggered the changes.
New Singapore Property Cooling Measures 2021 Summary
The new measures kicked in on 16 Dec 2021 and are applicable to all transactions whose Option to Purchase (OTP) was granted on or after 16 Dec 2021.
However, the new TDSR threshold does not apply to those whose existing loans were granted before 15 Dec 2021, regardless of whether they had exercised their OTP at the time they applied for the loan.
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New Singapore property cooling measures |
Description of new cooling measures from 16 Dec 2021 |
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Higher ABSD |
Raised for Singapore citizens and PRs buying second and subsequent property Raised for all foreigners and entities |
|
Tighter TDSR threshold |
Lowered from 60% to 55% |
|
Lower LTV limit |
Lowered from 90% to 85% for HDB loans |
1. Higher ABSD: SCs and PRs Buying Second/Subsequent Property, Foreigners and Entities
ABSD is levied on residential property purchases in order to moderate demand for residential property. Singapore citizens pay ABSD on second and subsequent residential property purchases, while PRs and foreigners pay ABSD on all residential property.
Related article: What You Need to Know if You’re Buying Property in Singapore as a Foreigner (2021)
The new cooling measures will raise ABSD rates for Singaporeans and PRs buying a second and subsequent residential property. In addition, all foreigners and entities will pay higher ABSD on all residential property purchases in Singapore.
The ABSD hike will discourage Singapore investors from purchasing investment properties, and might also cool demand from foreigners who may wish to invest in and speculate on Singapore properties.
Related article: 4 Reasons Why Sentosa Cove is Making A Comeback in 2021
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Buyer profile |
Previous ABSD rates |
ABSD payable (on or after 16 December 2021) |
|
Singapore Citizen buying first property |
0% |
0% (no change) |
|
Singapore Citizen buying second property |
12% |
17% |
|
Singapore Citizen buying third and subsequent properties |
15% |
25% |
|
Singapore Permanent Resident (PR) buying first property |
5% |
5% (no change) |
|
Singapore Permanent Resident (PR) buying second properties |
15% |
25% |
|
Singapore Permanent Resident (PR) buying third and subsequent properties |
15% |
30% |
|
Foreigner buying any property |
20% |
30% |
|
Entities (company or association) buying any property |
25% (additional 5% if entity is housing developer; non-remittable) |
35% (additional 5% if entity is housing developer; non-remittable) |
2. Lower LTV Limit: Lowered from 90% to 85% for HDB-granted loans
The LTV requires financial institutions to restrict home loans to a certain percentage of the property value and serve as a safeguard against over-leveraging.
The tightened LTV limits are targeted at HDB flat buyers, who are intending to use an HDB loan to fund their property purchases. The new cooling measures see the revised LTV limit for an HDB loan lowered from 90% to 85%, reducing the loan amount that one can take.
This will affect those buying new flats launched from 16 Dec 2021 onwards, as well as complete resale flat applications received from 16 Dec 2021 onwards.
For HDB resale flat buyers taking out bank loans, the LTV remains unchanged at 75%.
Related article: Bank Loan Vs HDB Loan 5 Key Differences: The Complete Guide to Financing Your HDB
|
Previous LTV limit for HDB loans |
Revised LTV for HDB loans on/after 16 Dec 2021 |
|
90% |
85% |
3. Tighter TDSR Threshold: Lowered from 60% to 55%
The TDSR limits the amount of money a financial institution can lend a borrower and has been lowered from 60% to 55%.
This means that financial institutions are prohibited from lending to borrowers amounts that would raise their total debt repayments, including any other loans and credit card debt, to exceed 55% of their gross monthly income.
The lower TDSR will not affect buyers who have been issued an OTP on or before 16 Dec 2021, regardless of whether or not they have exercised it.
It also does not apply to those who are refinancing loans that were granted before 16 Dec 2021, or those who are refinancing owner-occupied housing loans.
|
Previous TDSR |
Revised TDSR on/after 16 Dec 2021 |
|
60% |
55% |
Dec 2021 Cooling Measures: What it Means for the Singapore Property Market
The property market has been booming for much of the COVID-19 pandemic, with prices rising for most of 2021. Even during the Hungry Ghost Festival month spanning August and September, a traditional lull period for property transactions in Singapore.
Paul Wee, FinTech Managing Director, PropertyGuru Group, said, “The trigger was the significant increase in the number of million-dollar HDB transactions,” referring to the record-breaking 29 HDB flat transactions of over a million dollars that took place in November 2021. In the first 11 months of 2021, 223 million-dollar HDB flats were transacted.
“The HDB property market underpins the whole residential property market in Singapore. That’s why the government started with reduced TDSR and lower LTV for HDB-financed loans,” he said.
The new cooling measures will likely have a strong impact on Singapore property investors hoping to buy a second or subsequent investment property, due to the hike in ABSD rates.
Dr. Tan Tee Khoon, Country Manager at PropertyGuru Singapore noted that first-time buyers are only affected by the change in LTV and TDSR.
“This is a move by the Singapore government to reduce household mortgage debt given the economic uncertainties caused by the pandemic and easy accessibility to low interest rate loans,” said Dr. Tan.
“While LTV (for bank loans) remains at 75%, new borrowers are subject to more stringent credit assessment.”
Related article: Credit Score in Singapore: 5 Rookie Mistakes You Might Have Made Unknowingly
The ABSD hike will strongly affect foreign investors, whose numbers have fallen during the pandemic but could rise again following the resumption of travel.
“The higher ABSD amounts protect first-time Singaporean and PR buyers,” said Mr Wee.
He added, “For the investors, I expect a significant increase in interest in the commercial/industrial space, as a substitution for 2nd/3rd/4th residential properties,” a view that is also shared by Dr Tan.
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In summary, the new property cooling measures include higher ABSD for Singapore citizens and PR investors as well as all foreign buyers and entities, the lowering of LTV limits for HDB loans and the lowering of TDSR.
These have the effect of making it more expensive for investors and foreigners to purchase property in Singapore. Additionally, those who live in Singapore as citizens or PRs would be discouraged from buying more residential properties for investment purposes.
For first-time Singaporean and PR homebuyers, the measures do not affect the cost of a first home but will require them to pay for a larger proportion of their properties in cash or via their CPF Ordinary Account (OA) savings.
In line with announcements that the US Federal Reserve plans to hike interest rates at least twice in 2022, Singapore home loan interest rates are expected to gradually rise, which could have a further cooling effect on the property market.
More FAQs on Property Cooling Measures in Singapore
What Are the New Property Cooling Measures in Singapore?
The new cooling measures include higher Additional Buyer’s Stamp Duty (ABSD), tighter Loan-to-Value (LTV) limits and lower Total Debt Servicing Ratio (TDSR).
Are HDB Flat Buyers Affected by the New Property Cooling Measures?
Those taking out HDB loans are affected by the tightened LTV limits, while all HDB buyers are affected by the lowered TDSR.
When Do the New Property Cooling Measures Take Effect?
The new cooling measures took effect on 16 Dec 2021.
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This article was written by Joanne Poh. A former real estate lawyer, she writes about property and personal finance and spends her free time compulsively learning languages and roller skating in carparks.
