Property cooling measures Dec 2021

If you’ve only got a minute:

• The latest round of property cooling measures came about from concerns that a booming property market might result in a bubble.
• Among the measures introduced are higher Additional Buyer’s Stamp Duty (ABSD) rates and a tightening of the Total Debt Servicing Ratio (TDSR) threshold.
• Affordability is key when making big ticket purchases.

With property prices in Singapore on the up in the last couple of years, the Singapore government implemented more measures to cool the residential property market in December 2021.

As prices for homes have been rising steadily, there have been concerns that a booming property market might result in a bubble.

According to the Ministry of Finance, Ministry of National Development and Monetary Authority of Singapore, private property prices have risen about 9% since 1Q20. Meanwhile, Housing Development Board (HDB) resale prices have risen about 15% since 1Q20, recovering sharply after a six-year decline.

A key reason behind the increased demand for housing is the low-interest rate environment we found ourselves amid the Covid-19 pandemic. As such, transaction volumes in both the private housing and HDB resale market have been on the up despite the economic impact brought about by the pandemic.

Among the reasons that led to the announcement of these cooling measures - the first since July 2018, include:

• Promoting continued housing affordability

• Preventing housing prices from running ahead of economic fundamentals

• Reducing the risk of a destabilising correction

• Borrowers would be vulnerable to a possible rise in interest rates in the coming years

As a result, the government has raised Additional Buyer’s Stamp Duty (ABSD) rates, and tightened the Total Debt Servicing Ratio (TDSR) threshold, with effect from 16 Dec 2021.

Here’s how they can impact you.

Additional Buyer’s Stamp Duty (ABSD)

ABSD is a tax that's levied on top of the Buyer's Stamp Duty (a tax that property buyers have to pay when they buy a property), and it's computed based on the valuation or the selling price of the property, whichever is higher.

With the latest measures, ABSD rates for the purchase of a first residential property by Singapore citizens and permanent residents (PRs) remain unchanged at 0% and 5% respectively.

For these two groups, purchasing a second or a third and subsequent residential property will incur increased ABSD rates.

Singapore citizens will now pay an ABSD rate of 20% for their second residential property, and 30% for their third and subsequent residential property. This is up from the previous rates of 17% and 25% respectively.​

The ABSD rates for permanent residents buying a second or a third and subsequent residential property has been increased to 30% and 35% respectively, up from the previous rates of 25% and 30%.​

Foreigners and entities will also incur more ABSD when purchasing any residential property. Foreigners buying any residential property are subject to an ABSD rate of 60%, up from 30%. Entities, which include companies, are subject to an ABSD rate of 65%, up from 35%.

There is no change to ABSD for housing developers. They will still be subjected to a 35% ABSD rate, of which they can apply for a remission plus an additional 5% ABSD (paid upfront upon property purchase) that cannot be remitted.

Total Debt Servicing Ratio (TDSR)

The TDSR is the portion of a borrower’s gross monthly income that goes towards repaying the monthly debt obligations, including the loan being applied for. With the latest cooling measures, the TDSR threshold has been tightened to 55% from 60% previously.

This means new mortgages cannot cause borrowers’ total monthly loan repayments to exceed 55% of monthly income.

It will apply to loans for the purchase of properties where the option to purchase (OTP) is granted on or after 16 Dec 2021. The same applies to mortgage equity withdrawal loan applications in the same period.

Lower Loan-to-value (LTV) limit for HDB Loans

The LTV limit determines the maximum amount that can be borrowed for a housing loan.

With the latest round of property cooling measures, the LTV limit for a HDB-granted loan is reduced to 85%, down from 90% previously.

This means the maximum loan amount is capped at 85% of the market value of the house. For example, if a particular HDB flat that you are interested to buy is valued at $500,000, you can borrow up to $425,000. The lower LTV reduces the maximum amount potential homebuyers can borrow from HDB.

The LTV limit for loans obtained from financial institutions like DBS to purchase HDB flats remains unchanged at 75%.

A summary of the measures

Financial planning is key

Affordability is key when it comes to purchasing a big-ticket item like property. So, do your sums carefully to see if you will be able to commit to the mortgage payments over time before making your purchase.

Assess your home purchase in relation to your financial plan and other investments. This will help to provide more clarity on your overall financial health and enable you to understand how your other goals may be impacted in the short and long term.

In the light of the latest cooling measures, you may wish to consider other instruments instead of relying heavily on property to grow your wealth.

Start Planning Now

Check out DBS MyHome to work out the sums and find a home that meets your budget and preferences. The best part – it cuts out the guesswork.

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Alternatively, prepare yourself with an In-Principle Approval (IPA), so you have certainty on how much you could borrow for your home, allowing you to know your budget accurately.

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