Since 2020 Q1, private housing prices has increased about 9% and HDB resale flat prices has increased about 15% over the same period. This is despite the ongoing pandemic and its corresponding economic impact.
In 2021, we are already seeing huge number of transaction volumes in both the private housing market and HDB resale market amid the low interest rate environment. We have observed that the increasing HDB prices can allow HDB flat sellers to cash out more funds for them to upgrade their home. Coupled with the huge number of BTOs flat owners meeting their MOP in 2021, this has caused the transaction volume to go up.
With huge property price increase in 2021, if the property prices are left unchecked, prices could run ahead of economic fundamentals, and increase the risk of a destabilizing correction later. In addition, if interest rates were to increase in the subsequent years, property loan borrowers would be exposed to more risk.
Therefore, I feel the reason for the latest round of cooling measures is to slow down the private and public housing markets price growth, and to promote continual housing affordability. It is important to keep property prices affordable here, so that residents who are buying for their own occupation can continue to afford them. The cooling measures are implemented to create a stable and sustainable property market which is good for first timers who are genuinely looking to buy a property for their own stay.
First let us look at what are the latest measures?
The figure below summarizes the latest round of cooling measures.
Additional Buyer’s Stamp Duty (ABSD)
One of the changes in the latest round of cooling measures is the increased in the ABSD rates. The Government has raised the ABSD rates for:
- Singapore citizen purchasing their second residential property 17%
- Raise ABSD rate to 25% for Singapore citizen purchasing their third and subsequent residential property and for SPRs purchasing their second residential property
- Raise ABSD rate to 30% for SPRs purchasing their third and subsequent residential property and foreigners purchasing any residential property,
- Raise ABSD rate to 35% for entities purchasing any residential property; and
- Raise ABSD rate to 35% for developers purchasing any residential property. This 35% may be remitted under the Stamp Duties (Non-licensed Housing Developers) (Remission for ABSD) Rules and the Stamp Duties (Housing Developers) (Remission of ABSD) Rules, subject to conditions. In addition to this 35% ABSD rate, the non-remittable component remains unchanged at 5%.
Tightening of Loan-to-Value (LTV) Limit
The LTV limit for HDB housing loans will be tightened by 5%-points from 90% to 85%. The revised LTV limit does not apply to loans granted by financial institutions, for which the LTV limit remains at 75%.
Tightening of Total Debt Servicing Ratio Threshold (TDSR)
The TDSR threshold will be tightened by 5%-points from 60% to 55%.
What are the possible impacts in 2022?
You can also watch the video on the possible impact of cooling measures here.
Does cooling measure means that there will be a price drop?
Not all cooling measures will cause prices to decrease. Let us look at 2018 example:
| Quarter | % Change |
| Q1 18 | +3.9% |
| Q2 18 | +3.4% |
| Q3 18 | +0.5% |
| Q4 18 | -0.1% |
| Q1 19 | -0.7% |
| Q2 19 | +1.5% |
| Q3 19 | +1.3% |
| Q4 19 | +0.5% |
When the cooling measure is implemented in Q3 2018, the prices did adjust initially in Q4 2018 and Q1 2019. After that, prices start to increase from Q2 2019 onwards. Here we can observe a “knee-jerk” reaction to the cooling measure, and there after the prices continue to increase.
I think that the price movement will still largely depends on the affordability, supply and demand of the property market instead of just dependent on cooling measures alone.
Who are the most affected?
In this round of the cooling measures, we can see that the increased ABSD is targeted at multiple residential property buyers as well as foreign buyers. It will discourage these groups of buyers from buying another property.
However, for Singapore citizen and SPR buyers getting their first residential property, there ABSD rates remains unchanged for them. Also, from the previous rounds of cooling measures, we have already seen buyers making plans to manage the ABSD by doing decoupling, buying properties under single ownership or buy under trust to manage the ABSD.
TDSR should not affect many buyers
With the TDSR reduction, the amount of loan that a buyer can get from a bank will be lower.
The table above illustrates how the reduction of TDSR can affect the amount of loan a person can be eligible. While the reduction of TDSR can reduce the loan quantum, most people are currently not using up to the maximum of 60% of their income to service their property and other financial commitments. The mortgage servicing ratio I believe should be more likely to be in the range of below 50% of their income. Thus, the lowering of the TDSR should not affect most people who are not fully stretched on their loan.
Going forward
I will expect the market to have some knee jerk reaction to the cooling measures. Transaction volume may show down, and property price growth may slow down too.
However, with the potentially big numbers of HDB upgraders in 2022, this may prop up the transaction volume and keep the prices stable. Looking at the land bids prices in 2021 GLS, the prices of new launch properties in 2022 are expected to be higher. Coupled with higher construction material cost and labour cost, I will expect prices of 2022 new launches to be higher.
Of course, I do not have a crystal ball to see the future, but these statistics should be helpful to give us good insights on the market. Hope that in 2022 there are no major economic crisis, and the property market can continue to grow at a sustainable rate.