Cooling Measures Summarized Dec 2021

Singapore government unveiled a set of measures today to calm the resale markets for private homes and HDB flats. Additional Buyer’s Stamp Duty (ABSD) rates will be hiked, and the Total Debt Servicing Ratio (TDSR) criteria will be tightened, with effect from December 16, 2021. In addition, the government would reduce the LTV ceiling for HDB loans from 90% to 85%. In addition, to meet demand, the government will enhance public and private housing supply.

For many quarters, the government has been keeping a careful eye on the real estate market. Despite the economic effect of COVID-19, the private residential and HDB resale markets have been strong. Since 1Q2020, private house prices have climbed by around 9%. After a six-year drop, HDB resale flat prices have rebounded strongly, climbing nearly 15% since 1Q 2020. Despite the fact that house price-to-income ratios are still below historical norms, there is a definite rising trend. Despite the COVID-19 scenario, transaction volumes in the private housing market and HDB resale market have remained robust amid the low interest rate environment.

Prices might soar ahead of economic fundamentals if allowed uncontrolled, increasing the possibility of a destabilizing correction later. Borrowers would also be exposed if interest rates were to climb in the future years.

Between 2014 and 2018, the HDB Resale Price Index fell by 9.9%, then stayed unchanged in 2019.

As a result, the government has chosen to enact a series of policies to temper the private and public housing markets in order to maintain housing affordability. The private residential measures are designed to stifle broad-based demand, particularly from individuals buying for investment rather than for personal use. Financial prudence will be encouraged by measures to tighten financing conditions for both public and private homes. The government will also increase housing supply, both private and public.

Measures that Apply to All Residential Real Estate

The existing ABSD rates for Singapore Citizens (SCs) and Singapore Permanent Residents (SPRs) buying their first home would stay unchanged at 0% and 5%, respectively.

The ABSD tariffs will be raised in the following manner:

  • Raise the ABSD rate for SCs acquiring their second residential property to 17%;
  • Raise the ABSD rate to 25% for SCs buying their third and subsequent residential property, as well as SPRs buying their second residential property.
  • Raise the ABSD rate to 30% for SPRs buying their third and subsequent residential property, as well as foreigners buying any residential property.
  • Increase the ABSD rate for organizations acquiring any residential property to 35 percent; and
  • Raise the ABSD rate on developers acquiring any residential property to 35%. Under the Stamp Duties (Non-licensed Housing Developers) (Remission for ABSD) Rules and the Stamp Duties (Housing Developers) (Remission of ABSD) Rules, this 35 percent may be remitted, subject to certain criteria. The non-remittable component of ABSD stays constant at 5%, in addition to the 35 percent ABSD rate.

 

Cooling Measure Summarized

Housing Developers will be liable to the ABSD rate for entities as well. Under certain situations, housing developers may apply for ABSD remission.

With regard to the subject property purchased, housing developers refer to businesses engaged in the business of housing development (i.e., the building and sale of housing units).

Housing Developers are subject to a 5% ABSD in addition to the ABSD for all companies. This 5% will not be remitted and must be paid in full at the time of acquisition of a residential property.

The highest applicable ABSD rate will apply to purchases done jointly by two or more parties of different profiles.

Subject to certain restrictions, married couples with at least one SC spouse who jointly acquire a second residential property may continue to file for an ABSD reimbursement.

  • If the second residential property is not completed at the time of purchase, they must sell their first residential property within 6 months of
  • the date of purchase of the second residential property if it is a completed property, or (b) the issue date of the Temporary Occupation Permit (TOP) or Certificate of Statutory Completion (CSC) if it is not completed at the time of purchase.
  • If any of the joint acquirers/purchasers is a SC, the ABSD does not impact people purchasing a HDB flat or EC unit from property developers with an upfront remission. This is not going to change.

If the Option to Purchase (OTP) is granted on or after December 16, 2021, the new ABSD prices will apply. ABSD rates will apply for situations that fulfill all of the following requirements before December 16, 2021 under a transitory provision:

  • On or before December 15, 2021, sellers provide the OTP to interested purchasers;
  • This OTP is used on or before January 5, 2022, or during the validity term of the OTP, whichever comes first; and
  • On or after December 16, 2021, this OTP has not been changed.

As a result, the Additional Conveyance Duties for purchasers of equity interest property-holding entities5 will be increased from up to 34% to up to 44%. (increase by 10 percent -points).

A property-holding entity is one that has at least 50% of its total tangible assets (asset ratio) in Singapore consisting of designated immovable properties. Details about specified immovable properties may be found on the IRAS website.

Threshold for Total Debt Servicing Ratio Tightening (TDSR)

The TDSR threshold6 will be lowered by 5% points, from 60% to 55%. The new TDSR level will apply to loans for the acquisition of real estate with an OTP issued on or after December 16, 2021, as well as mortgage equity withdrawal loan applications submitted on or after December 16, 2021. Borrowers who refinance their current property loans before December 16, 2021 will not be impacted by the new TDSR requirement. 7

The TDSR applies to both residential and non-residential property loans made by financial institutions to people, sole proprietors, and vehicles that do not operate a legitimate company and are put up to acquire properties owned by persons.

For borrowers refinancing their owner-occupied house loans, the TDSR is now waived. MAS has offered a temporary TDSR waiver for borrowers refinancing their current investment property loans if they are impacted by COVID-19. Otherwise, the 60 percent TDSR will be applied.

Public Housing-Specific Measures

The maximum loan-to-value ratio (LTV) for HDB home loans would be reduced by 5%, from 90% to 85%. The new LTV restriction does not apply to loans made by financial institutions, which still have a 75 percent LTV cap.

The 85 percent LTV restriction will apply to new flat applications for sales exercises starting after December 16, 2021, as well as full resale applications8 received by HDB after December 16, 2021.

8 A full application is one in which both the sellers’ and purchasers’ components of the resale application have been received by HDB.

Increase Housing Supply

To fulfill housing demand, the government will enhance both public and private housing production. Tomorrow will provide more information.

The actions included in this cooling package will aid in the promotion of a stable and long-term property market. The government is nonetheless concerned about the possibility of a protracted rise in prices in relation to income patterns.