Property Cooling Measures 2018 – 6 Most Important Things You Should Know
The government of Singapore in July 2018 announced the slaying property cooling features. The aim was to cool down the seemingly hot or rather overheating property market. Among the cooling measures include Loan-To-Value (LTV) and the Additional Buyer Stamp Duty (ABSD). To understand what property cooling measures are and why they are there in the first place, here are a few essential things that we think you should know.
What are the property cooling measures?
In July this year, the country was hit by two significant changes—Additional Buyers Stamp Duty (ABSD) which actually went up, while the Loan-to-value limits which came down. In simple terms, buyers cannot borrow large amounts of money at once like they used to before and have more taxes to pay to the Singapore government. If you’re a Singapore resident intending to purchase residential property, here is how ABSD looks like for you:
- For property developers, they have to pay ABSD, and it is no longer 15% but 30 %.
- For 3rd home purchasers, the ABSD has gone up from 10% to 15%.
- For the 2nd home buyers, the ABSD has gone higher with a 5% rate from 7% to 12%.
Luckily, there are no changes for first time home buyers, who are Singapore citizens. If you’re upgrading your property with intentions to sell it, you will be charged ABSD. However, you will have it refunded so long as you sell it within six months.
The LTV limits were dropped, but HDB flats were not affected. This decrease means that you can only borrow a limited amount of money which is slightly below what you could have borrowed before. This also means that your down payment just grew more prominent. Before the changes were made the LTV limit for a Singaporean’s first home was up to 80%, but after the reduction, it fell to 75%.
What prompted these changes?
We all know how the Singapore government works. They always find ways of regulating market. Since there has been a massive rise in property prices and property market at large, the government sought to cool the heat by imposing the two significant conditions.
Note that the Monetary Authority of Singapore (MAS) does not impose cooling measures without any prompting reasons, but only when they feel that the situation warrants them to do so. Therefore, we cannot speculate that it wasn’t justifiable. Over the past two years, developers have been bidding highly on residential properties creating swarms of new cash buyers, subsequently inflating the demand for homes particularly new homes. To prevent these prices rising higher, cooling measures had to be done to deflate the property market.
What does the future hold for Singapore’s first time home buyers?
For those saving to buy a home or those millennials intending to settle down for marriage, it is natural to start panicking but wise if you prepare yourself. Well, the good news is that first-time buyers are not affected by the cooling measures, especially by the ABSD increase.
The bad news is that the LTV limits will hit you if you are going the loan way. You may be required to pay a big chunk of the flat rate in CPF or cash. Well, it’s not that bad for an organized individual, since you may not need to take up huge loans to fund your investment.
In truth, harsh times are coming particularly next year where almost all basic commodity prices are going up. If you’re in your 20s, you probably don’t have much in your account, and that will only mean that your best choice would be to seek shelter with the HDB housing loans.
I’m planning to upgrade my house; will the changes affect this?
If you’re planning on upgrading your home—the one that you live in, you are only affected by the LTV limits but not the ABSD. The ABSD affects buyers who are looking to purchase more than one home. The LTV restrictions will apply only if you need to apply for a loan to upgrade the house. Just like home purchasers, you will be required to fork out more money in either CPF or cash for the down payment.
What are the consequences of en bloc sales?
For those living in old property hoping to acquire some cash on the en bloc trend, sorry but it’s already too late or maybe you should just put the dream on hold. The 5% increment on ABSD is quite a vast amount putting into consideration, the entire land plot price. In simple terms, it’s no longer worth it nor profitable to purchase properties on en bloc. However, if you just sold your home on en bloc, then you are probably one of the luckiest.
You have won big time in the whole exercise and if you wanted to move out of your former house and get a new home, you can successfully achieve that because you’re quite cash rich and can easily afford to pay the 25% CPF/cash down payment required to process the bank loan.
If you have a home, now is not the best time to get a new one, unless of course you’re loaded with funds. You can simply stay away while closely watching how the property prices go to establish the best moment.
What will become of the property prices currently
From the above notes, we have seen how the cooling measures will affect and control the private property market, which only means that the individual property prices will either go down or remain constant. On the other hand, there will be another unsuspected effect—HBD resale prices may go up.
The current situation stands that private properties are a challenge to acquire, home buyers will turn to HBD flats since the property cooling measures have not affected them. The influx of demand will then force the HBD resale prices to go higher than they’re now. This unexpected twist may unfold sooner depending on how the private property market behaves.
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