Latest Cooling Measures
The Singapore government announced the introduction of the latest cooling measures, effective from 30 September 2022. The new cooling measures aim to moderate demand in the property market by tightening borrowings. lt also aims to encourage financial prudence among homebuyers amid the present climate of rising interest rates.
New Cooling Measures (in Broad Categories)
Changes to Interest Rate Floor
Revision of HDB Loan-to-Value (LTV) Limits
15-Month Wait-Out Period for PPOs and Ex-PPOs
1) PPOs refer to Private Property Owners.
2) Ex—PPOs or former Private Property Owners refer to homeowners who had disposed of their private properties prior to submitting an application to buy resale flats.
Changes to Interest Rate Floor
Type of Property loan:
Changes to Interest Rate Floor Loan:
Home loans from private financial institution (Fl), such as banks and credit companies
The medium-term interest rate floor (i.e. minimum interest rate) used for computing Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) increased by 0.5% for private financial institutions' property Loan Medium-Term Interest Rate Floor in Computing TDSR and MSR for the private financial institution property loan
(Note: The actual interest rate charged for the property loan will continue to be determined by the private financial institutions.)
Home loan from HDB
(Note: The actual HDB concessionary interest rate remains at 2.6% p.a. presently.)
1) Total Debt Servicing Ratio (TDSR) refers to the portion of a borrower's gross monthly income that goes towards repaying the monthly debt obligations, including car loan, unsecured loans and the loan being applied for.
2) Mortgage Servicing Ratio (MSR) refers to the portion of a borrower’s gross monthly income that goes towards repaying all property loans, including the loan being applied for.
Revision of Loan-to-Value [LTV] limits for IIIIB loans
15-Month Wait-0ut Period for Private Property Owners
Private Property Owners Both PPOs and Ex-PPOs
Both PPOs and Ex—PPOs
are (PPOs) and Ex-PPOs subjected to a 15-month wait-out period to purchase a non-subsidized HDB resale flat.
Seniors aged 55 years and Above
The 15-month wait-out period does
above not apply to seniors and their
spouses aged 55 years and above
who are moving from their private
homes to resale non-subsidized HDB
flats that are 4-room flats or smaller.
Impacts of latest Cooling Measures
Impacts of Introducing 3% Interest Rate Floor to Compute Eligible Loan Amount and Lower LTV Limit of 80% for HDB Housing Loan
1. Buyers of HDB flats who borrow their home loans from the HDB would only be able to borrow a smaller loan quantum.
This will reduce the purchasing power of some buyers and could cause them to search for cheaper HDB flats. E.g. A household that originally plans buy a 5-room HDB flat would have to settle for a cheaper flat that is either smaller or in a less accessible location.
2. HDB 4-room flats will likely become even more popular
A typical family consisting of parents, children, and possibly a domestic helper would need a family-size flat with at least 3 bedrooms. The HDB 4-room flats are the smallest flats with 3- bedrooms.
As 4-room flats are usually cheaper than the larger flats, they will become more popular due to this new market curb.
3. The growth in the number of transacted million-dollar HDB flats will slow down in the short term and may even decline for 3 to 4 months as many buyers will wait and see before deciding on their home purchases.
After a few months, potential buyers will likely return to the HDB resale market and the transaction volume of such flats will stabilize.
In the longer term, the sales volume of the million-dollar flats will gradually increase as there is demand for larger flats. There is no new supply of certain larger flats, such as Executive flats and Maisonettes. Hence, buyers can only buy from the existing stock of such flats, leading to an eventual price rise.
Consolation for owner-occupied property mortgagors
One consolation is that borrowers who plan to refinance their owner-occupied home loans will not be affected by the new cooling measures.
Impacts on Bank and Other Lenders
The volume of new mortgage loans will be adversely affected in the short term by the new curbs.
However, the banks and lenders could turn to borrowers for owner-occupied properties who wish to refinance their loans.
The overall impact is still negative for the lenders’ home loan business volume in the short term.
Impacts of 15-month Wait-Out Period for PPOs and Ex-PPOs aged below 55 years to purchase a resale HDB flat
1. There would be more upwards pressure on housing rentals
PPOs and Ex-PPOs who are under the age of 55 years must now wait 15 months after the disposal of their private properties before they are eligible to buy a non-subsidized resale HDB flat. This means that they would have to rent a home for at least 15 months after the sale of their private properties.
This will add to existing demand in the residential rental market, contributing to stronger rental growth.
2. HDB resale market volume would likely see a slowdown
There would be less demand for HDB resale flats from private Property downgraders aged below 55 years due to the 15-month wait-out period.
3. Private property downgraders aged below 55 years could consider alternatives such as cheaper private resale properties
Some private property owners who want to downgrade or right-size their homes could sell their current homes, buy cheaper private housing units as their next home, and pocket the difference in the prices. This could lead to more sales activities in the private housing resale market.
Some private property owners will wait and observe the market in the meantime. They may currently freeze their plans to right-size their homes.
4. The 15-month wait-out period will have minimal impact on the residential enbloc sale market
Although the sellers of enbloc sale projects who wish to buy HDB resale flats as their next homes after the sale of their properties, will have to wait 15 months to do so, the profit from the enbloc sale is s attractive that they will be willing to rent a temporary home during the 15-month waiting period.