Before we go into analyzing the property cooling measures implemented by the government, what exactly is a cooling measure?
Basically, what it means is that there are efforts being made by the government to cool the market through various means such as increasing taxes on property in an effort to cool a housing market.
Since the first cooling measure was introduced in September 2009, potential home buyers have scrambled to keep up with the changes, which overnight can mean the difference between signing for the house or return to a safer alternative such as keeping it in the banks.
Here are some of the measures that were implemented by the government:
Total Debt Servicing Ratio (TDSR)
TDSR basically limits that amount of a borrower’s gross monthly income that can be spent on debt repayments to 60%.
E.g. You have a monthly income of $10,000, so only $6,000 of this may go towards debt repayment.
The whole idea of TDSR is to enforce responsible lending by financial institutions and sustainable borrowing by customers. The TDSR is calculated by dividing total monthly debt obligations by gross monthly income. The TDSR applies to all housing loans as well as the refinancing of housing loans and loans secured by property.
Additional Buyer’s Stamp Duty (ABSD)
With a surging property market, one of the problems is that it can price out those the government wants to serve first, which are usually Singaporean first homebuyers and people who want an upgrade. The ABSD works as a disincentive to other groups of buyers, and aims to curb the excessive investment that can drive up prices.
The ABSD is levied on whichever is higher of the purchase price or market value of the property. As per its name, the ABSD is payable in addition to the existing Buyers Stamp Duty (BSD). Ardmore Three a luxury development by Wheelock Properties is giving out ABSD rebates to buyers.
Seller’s Stamp Duty (SSD)
In February 2010, the Government introduced a new tax – the SSD – to be levied on all property and land sold within 12 months of purchase. This is because short-term buying and selling – speculative activity – can drive up prices and destabilize the market.
Six months after it was introduced, the SSD holding period was extended from one year to three years. Then in 2011, the holding period was extended again and Seller’s Stamp Duty rates increased up to six-fold.
There are more measures that the government has put into place besides the above few such as Restricted loan Tenure, Adequate supply of housing and Restrictions on Permanent Residents.
But with all of these measures being put in place, is it really cool enough for Singaporeans to get their dream home?
According to a PropertyGuru Property Sentiment Survey, majority of the Singaporeans still feel that the latest cooling measures has little impact in addressing the overall property affordability issues. The survey indicated that negative public sentiment towards perceived government effort peaked at 66% this quarter.
But there are some who say that the slow economic growth climate indicates that it might be a good time to at least tweak the measures. Recent results show that HDB resale prices have fallen about 10% from their highs in 2013, while private resale prices have come off by about 8%.
With prices stabilizing, transaction volumes have picked up slightly in the resale market. Industry watchers expect 2017 to pick up where 2015 left off, and that transaction volumes could continue to improve as “50-50” buyers may be lured back into the market.
So regardless of whether you agree if the property cooling measures is cool enough, it looks like the measures are here to stay for a while.