A lot of Singaporeans were having sleepless night yesterday. They were either too worried about the new cooling measures that were announced in the evening, or they were rushing down to the showflats of Riverfront Residences, Stirling Residences and Park Colonnial. To help buyers avoid the higher ABSD rates and tightening LTV ratio, the 3 developments opened for sale last night, ahead of their scheduled launch date.
What are the new cooling measures and how does it affect the property market?
Below are the new cooling measures that will take effect from today onwards.
Increase in ABSD Rates
- Singapore Citizens and Permanent Residents – the current ABSD rates for first residential property will be retained at 0% and 5% ABSD rates for subsequent residential property purchases will be raised by five percentage points
- All other individuals – ABSD rates will be raised by five percentage points
- Entities buying any residential property (including property developers) – ABSD rates will be raised by ten percentage points. An additional ABSD of 5 per cent will also be introduced for developers buying residential properties for housing development. This is non-remittable under the Remission Rules
- New ABSD rates will apply to purchases where OTP is granted on or after 6th July 2018
Tightening of Loan-to-Value Limits
- LTV limits will be tightened by 5 per cent-points for all housing loans
- Revised LTV limits do not apply to loans granted by HDB
- There is no change to existing rules on minimum cash downpayment
- New LTV will apply to purchases where OTP is granted on or after 6th July 2018
What can we expect from these new cooling measures?
The cooling measures, particularly the tightening of LTV, are going to affect upgraders and first-time buyers. The hurdle has been raised for HDB owners who aspire to upgrade to private condominium as the downpayment requirement for private condominium is now higher. They need to put in more cash/CPF for the 25% downpayment now.
First-time home buyers are also more inclined to purchase a HDB now due to the higher LTV of 80% available to them. Going for a HDB instead of a condo will relieve them of the upfront payment burden. Hence, the new rules are likely to aid the recovery in the HDB resale market and narrow the price gap between private residential and HDB.
It’s now time to bid farewell to the enbloc boom. Property developers are the key targets of the new set of cooling measures. The ten percentage points increase in ABSD rates for entity buyers is the highest increase among the different groups of buyers. Individual buyers only face a five percentage points increase in ABSD rates. With the changes, property developers will have to pay a hefty 25% ABSD for the unsold inventories after the 5-year allowance period. In addition, property developers also have to pay an additional ABSD of 5 per cent upfront now, when they acquire enbloc sites. The new set of rules will increase the developers’ risk and acquisition costs when they acquire new enbloc sites going forward. Since most of the developers have already managed to replenish their landbank since the middle of last year, they are now likely to hold back from buying more new sites.
When developers stop buying enbloc sites, the liquidity injection into the property market will come to a halt. There will be fewer enbloc millionaires out there and hence less money being recycled into the property market. With less money in the property market, developers will not be able to move their inventories. This will further dissuade them from buying more sites and may lead to cut in new launch prices to move inventories. And the vicious cycle continues.
Looks like the property market is going on a one step forward and two steps back. Let’s kiss goodbye to the property boom for now.