Will the Cooling Measures Affect My Chances of Purchasing a Private Property

Despite the pandemic slowing Singapore’s economic growth since its onset, the housing market showed no signs of slowing down. On the contrary, sales exceeded those in the same period by 36.4% last year, while our PropertyGuru Singapore Property Market Index (PMI) in the fourth quarter of 2021 saw an increase of 3.88% or 4.73 points.

As the property market fervently heated up, and prices continually rose, the slew of cooling measures announced in December 2021 might not be entirely unexpected. With the economy still reeling from the effects of the pandemic, the Government took swift action to reduce housing prices. The three new measures introduced were:

• Increased Additional Buyer’s Stamp Duty (ABSD) 
• Reduced Loan-to-Value (LTV) limits for HDB loans 
• Tightened Total Debt Servicing Ratio (TDSR) for private property loans

If you are reading this while planning to purchase your dream home, the announcement of such measures may have caused you some concern, especially if you are buying a subsequent property, HDB flat or require a high LTV to finance your new home.

This article will look at the new cooling measures and discuss their implications for property buyers going forward.

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Higher ABSD Rates: What Does it Mean?

If you purchase a residential property in Singapore, it is subjected to taxes known as the Buyer’s Stamp Duty (BSD). The ABSD is another tax levied over the BSD, and both are computed based on the selling price or valuation of the property, whichever is higher.

Under the latest property cooling measures with effect from December 2021, ABSD rates have been increased in various denominations for Singaporeans, Singapore Permanent Residents (SPR), foreigners, and non-individual entities, as shown in the following table:

Source: Ministry of National Development

If you happen to be a Singaporean or SPR and have been considering buying your first residential property, you’re lucky as the ABSD has not changed for you.

The ABSD is a concern for you financially if it is your subsequent home or you hold a foreign passport. Given the already high cost of private properties, the ABSD will add another tens of thousands or more based on the value of your purchase.

As an example, consider a condominium selling at S$2.1 million. If this is your second residential property as a Singaporean, you will have to pay S$357,000 (S$2.1 million x 17%) under the revised ABSD rates. This differs from the previous 12% ABSD, which amounts to just S$252,000.

However, several exemptions are also available under this new measure. For example, suppose it’s your second residential property purchase with your spouse (with at least one being Singaporean). In this case, you can apply for a refund of the ABSD after you sell your first residential property within six months after buying the second property from:

1. The date of purchase of the second residential property if this is a completed property, or,
2. The issue date of the Temporary Occupation Permit (TOP), or Certificate of Statutory Completion (CSC) of the second residential property (depending on which is earlier), if the second property is under construction at the time of purchase.

The revised ABSD rates will apply to cases with Option to Purchase (OTP) granted on or after 16 December 2021. A transitional provision will apply to buyers with ABSD rates before 16 December 2021 if they satisfy the following conditions:

• OTP was granted by sellers to potential buyers on or before 15 December 2021; 
• OTP will be exercised on or before 5 January 2022 or within the OTP validity period, whichever is earlier, and 
• OTP has not been varied on or after 16 December 2021

Reduced LTV Limits: Will it Reduce My Loan Quantum

The Government implemented the LTV ratio to limit the maximum amount of loan property buyers can borrow from banks and HDB. As long as the loan is meant to finance a property, the LTV limit will apply regardless of whether it is for the first or subsequent residential purchase.

For private properties, the latest LTV limit remains at 75% and shouldn’t affect your dream of owning that condominium, terrace, semi-detached house, or bungalow. However, HDB loan applicants are less fortunate, as the LTV has been reduced to 85% from 90% previously. 

Tightened TDSR Limits: Will it Affect My Loan Eligibility

The TDSR framework limits the amount of home loan a buyer can borrow by setting a debt repayment limit of 55% against the borrower’s gross monthly income. You can calculate the TDSR based on the formula below:

TDSR = (Total monthly debt obligations* / Gross monthly income**) x 100% 

*Monthly debt obligations to be included: 

• Property-related loans (including the loan being applied for) Car loans 
• Student loans
• Renovation loans
• Credit card loans
• Any other secured or unsecured loans (including revolving loans)

**Before tax and excluding any CPF contributions made by the employer.

As the TDSR threshold has been revised to 55% from 60% previously, those with high debt obligations may not be able to borrow as much, and vice versa. Also, if your age permits, you could stretch out your loan repayment period to fit within the TDSR threshold.

With the exorbitant prices of private properties in Singapore, a reduced TDSR limit will affect you more if you are interested in buying a big-ticket property. Since a bungalow will likely require a bigger loan than a condo, you may find yourself constrained by the reduced TDSR, especially if you have high debt obligations. For this reason, you would likely need to pay off your current debts or gain a higher income to qualify for a larger mortgage.

Let us now compare the differences in loan eligibility criteria under the two TDSR limits.

In order to qualify for a mortgage of S$1,575,000, the maximum debt that a borrower can incur with a 60% TDSR limit is S$7,800. However, this greatly decreases to S$7,150 with a lowered TDSR of 55%. Therefore, the borrower would not be eligible for the loan under the new limit because their combined monthly debt repayment of S$7,499 has exceeded the 55% limit.

Alternatively, they could either seek an additional monthly income of S$349 or apply for a smaller loan.

However, this only applies to new property purchases after December 2021. When refinancing your mortgages, existing homeowners with property loans granted before the date will not be affected by the TDSR threshold. 

First Time Singaporean & SPR Buyers Least Affected By New Measures

In a nutshell, the overall impact of cooling measures is to ensure that home buyers exercise financial prudence when purchasing a property and not overstretch themselves.

Since two of the three new measures will likely affect more of the mid-level market segment and above, HDB or first-time homebuyers would likely only be affected by either the lowered LTV limit for HDB loans or the reduced TDSR limit for private property purchases.

In contrast, buyers who wish to purchase a subsequent property will incur the hefty TDSR, which starts at 17% and increases to 35% for foreigners and entities. Coupled with the tighter TDSR limit at 55%, this group of buyers may find it hard to borrow a loan at the LTV limit, which means more up-front cash or CPFOA downpayment for the ABSD or due to the reduced loan amount.

Still confused about whether you are subject to the new cooling measures? No problem, PropertyGuru Finance’s friendly Mortgage Experts are here to assist you. If you need any advice on your new property purchase or refinancing your current home loan, please feel free to chat with us any time!

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More FAQs on How the New Cooling Measures Will Affect Your Chances of Purchasing a Private Property

What Are Property Cooling Measures?

Property cooling measures are property curbs or restrictions aimed at cooling the property market and stabilising prices. The latest round was introduced on 15 December 2021.

What Is Total Debt Servicing Ratio (TDSR)?

In Singapore, the TDSR limits how much of your gross monthly income can go towards repaying your debts. The TDSR is currently 55%.

What Is A Good TDSR Ratio?

There is no one-size-fits-all golden TDSR ratio, but it is generally not recommended to stretch yourself to the limit (currently 55% of your gross monthly income). For personalised financial advice, our PropertyGuru Finance mortgage specialists can help.

What’s the Difference Between TDSR and MSR?

The TDSR is how much of your gross monthly income you can use to repay all your debts, and applies to everyone. The Mortgage Servicing Ratio (MSR) is how much of the same can go towards repaying your monthly mortgage repayments specifically, and only applies to those who are servicing home loans for an HDB flat.