December 2021 cooling measures: Everything you need to know

Starting on 16th December 2021, new cooling measures will be introduced into the Singapore property market. I think no one is particularly surprised, as we have been considering such a possibility as early as 2020; and also because we’re in a situation where private homes and resale flats are both at a peak. The good news is that, overall, this round of cooling measures won’t have much impact on genuine home buyers at all. Here’s what to know:

What are the changes in this round of cooling measures?

The changes impact three areas:

  • Additional Buyers Stamp Duty (ABSD)
  • Loan To Value (LTV) ratio 
  • Total Debt Servicing Ratio (TDSR) 

1. Additional Buyers Stamp Duty (ABSD)

The ABSD is a tax, payable within two weeks of completing the property transaction. IT can be paid with cash or CPF, and is based on the property price or value (whichever is higher). 

These are the ABSD rates from 16th December 2021 onward:

ABSD for Singapore Citizens 

  • No ABSD for first property
  • 17% for second property (up from 12% previously)
  • 25% for any subsequent property (up from 15% previously)

ABSD for Permanent Residents 

  • 5% or first property
  • 25% for second property (up from 15% previously)
  • 30% for any subsequent property (up from 15% previously)

ABSD  for foreigners

  • 30% (up from 20% previously)

ABSD for entities

  • 35%, + 5% non-remissible (up from 25% previously)

The ABSD is irrelevant to most first-time home buyers, if you’re Singaporean. 

It does matter a bit to upgraders. If you’re upgrading to a private property, and you choose to buy your condo before selling your flat, note that you must pay the ABSD first. 

If you’re a married couple and one of you is a Singapore Citizen, you can apply for ABSD remission later; provided you sell your flat within six months of buying the private property. 

As the ABSD has been raised to 17 per cent, you will need more set aside in your cash or CPF to meet this. You can, however, avoid this by (1) selling your flat before you buy a private property, or (2) by buying an Executive Condominium, for which you don’t have to pay ABSD when upgrading.

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Foreigner’s Additional Buyer Stamp Duty increased a whopping 10%

2. Loan to Value  (LTV) ratio

This change is so small, most Singaporeans won’t even notice it. 

The LTV ratio is the maximum amount you can borrow for your home; it is based on the lower of the price or valuation.

As of 16th December, the LTV for HDB loans is reduced from 90 per cent to 85 per cent. This means the minimum down payment on your flat is 15 per cent. However, most Singaporeans already put down more than 15 per cent for their flat; whether they want to or not. 

When you use your CPF for the down payment, you are only allowed to keep up to $20,000. Everything else must go into the flat’s down payment (the government doesn’t want you borrowing more money than you absolutely have to). 

So for a $300,000 flat, the minimum down payment is $45,000. A couple that has been working and are in their 30’s will usually have around $100,000 to $140,000 in their combined CPF, and can only retain up to $20,000 each (total of $40,000). 

As such, they would end up making a down payment of around $60,000 to $100,000 via CPF, which is way more than the 15 per cent minimum down payment anyway. 

For those of you who are using bank loans, none of this affects you. The LTV cap for bank loans continues to be 75 per cent.

3. Total Debt Servicing Ratio (TDSR)

The TDSR limits the maximum amount of your monthly home loan. This used to be set at 60 per cent, but has now been reduced to 55 per cent. 

For example, say the combined monthly income of the borrowers is $10,000. A TDSR cap of 55 per cent means their monthly loan repayments cannot exceed $5,500 (inclusive of other loans like car loans, credit cards, etc.) 

If your loan repayments would exceed the TDSR, you will need to borrow less, or stretch out the loan tenure. 

To give you an example of how this works, consider a home loan of $1.125 million (this would be the maximum loan amount for a $1.5 million condo). Let’s say you take a loan tenure of 25 years. 

The TDSR is always calculated with an interest rate of 3.5 per cent, regardless of whether the real interest rate is lower. This would come to a loan repayment of around $5,632 per month. 

Under the old TDSR rules, you would need to have a combined monthly income of at least $9,386 per month. Under the new rules, which are tighter, your required monthly income would be $10,240. 

This is also not a major factor for many home buyers, or even most upgraders. This is because most buyers will not have a debt ratio as high as 55 per cent anyway; it’s imprudent to even have it above 30 per cent. 

(In fact for HDB properties, none of this is relevant as you have no choice. HDB properties impose a Mortgage Servicing Ratio, or MSR, capping the home loan to 30% of your monthly income). 

My thoughts on the key changes

The changes are not very significant for first-time home buyers. Increased ABSD doesn’t matter to them, as they don’t pay it anyway; and tightening the TDSR by five per cent is at best a minor tweak, as most prudent buyers are not taking loans that large. 

(If you’re considering a home loan that would take you to the very limits of your TDSR, I suggest you rethink it – there’s a good chance you’re over-borrowing). 

For HDB upgraders, the higher ABSD may be a small thorn. As I’ve explained however, you can avoid this by selling your flat before buying the condo; and in some cases, it’s possible to time it such that you won’t need temporary accommodation. Contact me if you need help in this regard. 

Anyway, most upgraders will want to sell their flat first, so they don’t have an interim period when they’re caught up servicing two home loans; and it can be quite stressful rushing to sell your flat in six months, lest you lose your ABSD remission.

Overall, the changes do lay a good foundation going forward. It’s not really preventing anyone from buying homes, or even blocking the average HDB upgrader; it’s just a way to ensure prudence. 

That’s not to say everyone is unaffected. Sellers with Core Central Region (CCR) properties are probably disappointed by this, as foreigners are the main buyers in this region. With the aggressive 30 per cent TDSR, sellers of luxury and CCR properties may see fewer prospective buyers. 

The 35% ABSD on housing developers is also very harsh; and consider that developers who don’t complete and sell all units on time could end up paying 40 per cent of the land price! 

Coupled with the lower supply of housing going forward, and depleted land banks that raise land prices, something has to give here. It could result, ironically, in new launch prices for the subsequent batch of properties going up (as developers need to maintain their margins somehow). 

Finally, I think by now we know buyers tend to pull back right after cooling measures. They will wait and see whether sellers flinch, and drop their prices. Given the strong underlying demand however, anyone looking for a discount will likely be disappointed. 

It’s improbable that home prices will actually drop because of this (except for luxury homes); but it could help to at least slow the pace of rising home prices. At present, private property prices are up nine per cent across the board since Q1 2020; so putting on the brakes is not unexpected.

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