New Property Cooling Measures: Higher Additional Buyer’s Stamp Duty, Stricter Loan Limits

With immediate effect on 16th December 2021, the government has implemented yet another round of measures to cool property prices:

• Increase in Additional Buyer’s Stamp Duty (ABSD) rates;
• Decrease in Total Debt Servicing Ratio (TDSR) from 60% to 55%; and
• Decrease in Loan-to-Value (LTV) limit for HDB loans from 90% to 85%

ABSD changes

Aside from Singapore citizens and permanent residents buying their first residential property, the ABSD rates have been significantly increased:

If the days of buying a second residential property weren’t over with a 12% ABSD rate, Singapore citizens and permanent residents now have to pay a whopping 17% and 25% of the property price respectively in additional stamp duties.

It’s still a bargain relative to the new, princely 30% rate foreigners have to pay for any residential property they purchase in Singapore.

If your Option to Purchase (OTP) was granted on or before 15th December 2021, however, the old rates can still apply as long as the OTP has not been changed after 15th December, and exercised by 5th January 2022 (or by the OTP expiry, whichever is earlier).

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More stringent loan requirements

The Total Debt Servicing Ratio (TDSR) is also going to be more stringent now, going from the previous 60% to 55%. This means that your total debt, inclusive of things like car loans and mortgage, cannot exceed 55% of your monthly income. Assuming no other loans, a gross monthly income of $4,000 could previously secure a maximum mortgage loan of $2,400 a month. The new limit would be $2,200 (55% of $4,000).

Loan-to-Value limit from HDB is also decreased to 85%, meaning that homebuyers purchasing flats from HDB will need to pay 15% of the property value upfront instead of the previous 10%. LTV limits for bank loans will remain unchanged at 75%.

Thoughts

These changes are being implemented instantly – likely to prevent a surge of eleventh-hour purchases that followed the government’s last major cooling measures in 2018. I don’t have first-hand experience, but anecdotes of agents being swamped with cheques and OTPs are telling of the chaos the government probably wants to avoid this time round. As a result, there are bound to be people who would wake up this morning to find plans being scuppered.

The last time cooling measures set in, I was a first-time homebuyer and had to pay significantly more upfront due to the tightening of the LTV from 80% to 75%. The cooling measures this time round do not affect one’s first property purchase that much if you’re a citizen or permanent resident. Your maximum monthly loan amount will be slightly lower now, though it is perhaps not so prudent to commit to a mortgage that takes up 60% or even 55% of one’s income in the first place.

This time, I’m getting this news as a homeowner, and one might imagine property owners being not too happy about property prices being cooled. It’s made worse for me by the fact that my property hasn’t really appreciated much in almost 2 years since I bought it, unlike other properties in more lucrative areas. A cautionary tale in property buying I suppose, but that’s something to talk about in another post.

A nation’s gotta nation, I guess, and ever-increasing property prices in a land scarce country has to be checked somehow. What do you think about these changes?

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