The property market has been abuzz recently, with the drop of new cooling measures that were aimed at promoting a stable and sustainable property market. Property owners and buyers that are thinking of making a move will have to take note of these measures, as it will be applicable to all residential property transactions with Options-to-Purchase granted from 16 December 2021 onwards.
Higher Additional Buyers’ Stamp Duty (ABSD) rates: How does it work
Firstly, we look at the higher additional buyers’ stamp duty (ABSD) rates. ABSD, as its name suggests, requires buyers to pay an additional rate on top of the existing Buyer’s Stamp Duty (BSD). ABSD and BSD are computed on the purchase price as stated in the dutiable document or the market value of the property, depending on whichever is the higher amount.
While ABSD rates for the first property purchase by Singapore Citizens and Permanent Residents remain unchanged at 0% and 5% respectively, there will be changes to other types of buyers and the rates applied. We take a look at the figures in the table below:
Rates for Singaporean citizens have increased by 5% for their second residential property and a steeper 10% for third and subsequent properties. As for permanent residents, their second residential property sees a visible increase of 10% and an even higher increase of 15% to 30% of the additional stamp duty payable. For foreigners, all properties will now start from 30% instead. Similarly, entities like companies and corporate bodies will now start with 35% for all residential properties.
Clearly, this has been a noticeable increase in the rates, creating concern about the ongoing practice of property investment. However, National Development Minister Desmond Lee assured the public on Wednesday (December 16) that the latest property cooling measures are only aimed at stabilizing the market, and it will not affect genuine buyers.
Tightened Total Debt Servicing Ratio (TDSR): How does it work
Next, we also notice that there is a tightening of the total debt servicing ratio (TDSR), where the threshold has decreased from 60% to 55%. TDSR is the ratio where new mortgages cannot cause borrowers’ total monthly loan repayment to exceed a certain percentage of their total gross income. In the past, it was at 60% and now it has been reduced to 55%.
If you need to see things from perspective, let’s have an example. For example, Bob is drawing $8,000 a month. Let’s take it that he has a car and credit card bills, which take up to $2,000 of loan repayment per month. This will mean:
Current TDSR = $2,000 existing monthly loan repayment / $8,000 income = 25% already taken up
Under the current tightened ratio of 55%, we only have 55% - 25% = 30% left
If Bob wants to apply for a property loan, he will only have = 30% x $8,000 = $2,400 left a month for property monthly loan repayments
This essentially limits the number of items you are purchasing on loans since the maximum of loans repayable you can make across every item can only add up to 55% of your monthly income.
That being said, do note that the TDSR threshold for refinancing existing property loans that were granted before 16 December 2021 will still remain at 60%.
Reduced Loan-to-Value (LTV) limit for HDB-granted loans: How does it work
Finally, we look into the loan-to-value limits from 90% to 85%, where the maximum amount of potential homebuyers can borrow from HDB has been reduced by 5%. That being said, the LTV limit has not been changed for those that wish to borrow from financial institutions, as it is still capped at 75%.
That being said, we foresee that this third change will not affect first-timer buyers or those that are able to benefit from grants. If you are able to use your Central Provident Fund savings upfront for your property purchase, then its effects are limited as well.
Future ahead: Greater navigation required
With these cooling measures, caution must be practiced when considering which units to buy - the benefits and growing value of properties are definitely still there. However, you will definitely need to do ample analysis and research to gain the best yield and profit margins. To get the latest property information and updates, reach out to Kaeden Ong directly.
The above is written by Kaeden Ong. To know more, contact him at +65 9048 0660.
The information provided is for generation information purposes only and does not have regard to specific investment objectives, financial situation and the particular needs of any recipient hereof. No information here should be used as legal, taxation or investment advice.