A Recap on Singapore Property Cooling Measures

posted by: Maybelle Ng in Property News

Singapore property prices started rising strongly after the end of the global financial crisis in 2009. Interest rates were kept low and with a rebounding economy property prices surged. This caused alarm bells to ring in the upper echelons of the Singapore government which is ever more determined in not repeating the mistake made prior to the Asian financial crisis by acting too late. Starting from the last quarter of 2009 the government introduced a spate of cooling measures to cool the market.

After 10 rounds of tampering it succeeded in putting a stop to the seemingly unstoppable bubble.

Below is a timeline of the cooling measures and a chart to show their combined effects on property prices.

Effect of Cooling Measures on Property Prices
Click on image for a larger view

Round 1 (14 September 2009):

This was introduced right after a 6 month surge in property prices from the steep plunge during the GFC:

a) Reinstatement of the Confirmed List for the 1st Half 2010 Government Land Sales (GLS) Programme.

b) Removal of the Interest Absorption Scheme (IAS) and Interest-Only Housing Loans (IOL), with effect from 14 September 2009.

c) Non-extension of the Jan 2009 Budget assistance measures for the property market when the measures expire.

Round 2 (20 February 2010)

a) Introducing a Seller’s Stamp Duty (SSD) on all residential properties and residential lands that are bought after 20 February 2010 and sold within 1 year from the date of purchase

b) Lowering the Loan-to-Value (LTV) limit from 90% to 80% for all housing loans provided by financial institutions regulated by the Monetary Authority of Singapore (MAS)

Round 3 (30 August 2010)

a) Increase the holding period for imposition of Seller’s Stamp Duty (SSD) from the current one year to three years.

b) For property buyers who already have one or more outstanding housing loans at the time of the new housing purchase:
i. Increase the minimum cash payment from 5% to 10% of the valuation limit; and
ii. Decrease the Loan-to-Value limit for housing loans granted by financial institutions regulated by MAS to these buyers from the current 80% to 70%.

Round 4 (14 January 2011)

a) Increase the holding period for imposition of Seller’s Stamp Duty (SSD) from the current three years to four years;

b) Raise the SSD rates to 16%, 12%, 8% and 4% of consideration for residential properties which are bought on or after 14 January 2011 and are sold in the first, second, third and fourth year of purchase respectively;

c) Lower the Loan-To-Value (LTV) limit to 50% on housing loans granted by financial institutions regulated by MAS for property purchasers who are not individuals; and

d) Lower the LTV limit on housing loans granted by financial institutions regulated by MAS from 70% to 60% for property purchasers who are individuals with one or more outstanding housing loans at the time of the new housing purchase.

Round 5 (7 December 2011)

Despite 4 rounds of cooling measures, property prices kept surging with long lines forming at new launches. At this point it had surged 70% above the 2008 low. A fifth round of measures were introduced to temper foreign demand. The Additional Buyer’s Stamp Duty (ABSD) was introduced. It will be imposed on top of the existing Buyer’s Stamp duty:

a) Foreigners and non-individuals (corporate entities) buying any residential property will pay an ABSD of 10%;

b) Permanent Residents (PRs) owning one and buying the second and subsequent residential property will pay an ABSD of 3%; and

c) Singapore Citizens (Singaporeans) owning two and buying the third and subsequent residential property will pay an ABSD of 3%.

Round 6 (5 October 2012)

The maximum tenure of all new residential property loans will be capped at 35 years. Additionally, the loans exceeding 30 years tenure will face significantly tighter loan-to-value (LTV) limits. This will apply to both private properties and HDB flats.

If your loan tenure is more than 30 years or the loan tenure goes beyond the retirement age of 65, these limits are lowered to:

– 60% if you do not have any other outstanding loan;
– 30% if you have one outstanding loan;
– 20% if you have two or more outstanding loans or if you are buying under a company.

Round 7 (11 January 2013)

Round 7 is a comprehensive list of measures introduced to further cool the residential market and to discourage speculations in the industrial property sector. These measures are not aimed at 1st time buyers but it does impact PRs to certain extent.

For all residential properties,

a)   Additional Buyer’s Stamp Duty (ABSD) rates will be:

i)   Raised between five and seven percentage points across the board.

ii)   Imposed on Permanent Residents (PRs) purchasing their first residential property and on Singaporeans purchasing their second residential property.

b)   Loan-to-Value limits on housing loans granted by financial institutions will be tightened for individuals who already have at least one outstanding loan as well as to non-individuals such as companies.

c)   Besides tighter Loan-to-Value limits, the minimum cash down payment for individuals applying for a second or subsequent housing loan will also be raised from 10% to 25%.

For Public Housing,

Below cooling measures are to further moderate the demand for HDB flats, have greater financial prudence among buyers and owner occupation requirement by PR buyers.

a)   Tighter eligibility for loans to buy HDB flats:

i)   MAS will cap the Mortgage Servicing Ratio (MSR) for housing loans granted by financial institutions at 30% of a borrower’s gross monthly income.

ii)   For loans granted by HDB, the cap on the MSR will be lowered from 40% to 35%.

b)   PRs who own a HDB flat will be disallowed from subletting their whole flat.

c)   PRs who own a HDB flat must sell their flat within six months of purchasing a private residential property in Singapore.

For New Executive Condominium (EC) Developments,

Below cooling measures are to ensure that ECs continue to serve as an affordable housing option for middle-income Singaporean families.

a)   The maximum strata floor area of new EC units will be capped at 160 square metres.

b)   Sales of new dual-key EC units will be restricted to multi-generational families only.

c)   Developers of future EC sale sites from the Government Land Sales programme will only be allowed to launch units for sale 15 months from the date of award of the sites or after the physical completion of foundation works, whichever is earlier.

d)   Private enclosed spaces and private roof terraces will be treated as gross floor area (GFA). The GFA of such spaces in non-landed residential developments, including ECs, will be counted as part of the ‘bonus’ GFA of a residential development and subject to payment of charges.

For Industrial Property Market,

Seller’s Stamp Duty (SSD) on industrial property was introduced on 12 January 2013 to discourage short-term speculative activity which could distort the underlying prices of industrial properties and raise costs for businesses. SSD rates which are detailed at IRAS portal will be imposed on industrial properties and land bought and sold within three years of the date of purchase.

Round 8 (28 June 2013)

After 7 rounds of cooling measures, property prices showed no signs of any cooling. It now up 85% in 4 years. The Singapore government took a really good hard look at the statistics and decided to use the sledge hammer rather than a pin to pop the bubble to not only protect buyers but also banks from saddled with bad loans in the event of a severe downturn in prices.

The Monetary Authority of Singapore (MAS) was tasked to enforce the Total Debt Service Ratio (TDSR) framework. It impacts all property loans granted by financial institutions (FIs) to individuals. This will require FIs to take into consideration borrowers’ other outstanding debt obligations when granting property loans. The TDSR is the one that “broke the camel’s back”.

In short, this framework is a set of rules that restrict financial institutions from lending to an individual if his outstanding debt repayments (any debt, not only linked to property) exceed 60% of his gross income (including the potential new loan). The interest rate used for calculation of the new loan is 3.5% or the actual interest rate, whichever is higher.

In addition, tenures of loans granted by FIs are limited to 35 years.

In case of co-borrowers, the income-weighted average age will be used, i.e. assuming Mr A (40) who earns $3,000 monthly and Mr B (30) who earns $2,000 apply for a loan, their income-weighted average age will be 36.

Guarantors must also not exceed the TDSR limit.

Round 9 (27 August 2013)

To further curb the over-heated HDB prices these measures were introduced:

a) Bank’s maximum HDB tenure reduced from 35 to 30 years
b) HDB LTV reduced from 80% to 60% if > 25 to 30 years or loan past age 65

Round 10 (9 December 2013)

The following 3 measures were introduced to refine the Executive Condominium Housing Scheme:

a) Reduce EC Cancellation Fees from 20% to 5%
b) Resale Levy for Second-Timer Applicants, similar to second-timer applicants who buy BTO flats. (Above 1 & 2 applies to EC land sales which is launched on or after 9 Dec 2013.)
c) Revision of Mortgage Loan Terms (3 applies to Option to Purchase which is granted on or after 10 Dec

 

Updated on:  10 March 2015


Recent Posts:

There is Only One Way Interest Rates Will Go And That is Up

What’s in Store for Singapore Property in 2015

Will Singapore Property Prices Come Crashing Down?

Has Singapore’s Property Market Already Burst?