The latest MAS property cooling measures effective 12 Jan 2013 is considered the 'strongest' cooling measure that MAS has implemented to further 'cooled down' the buoyant property market. This is despite the various property cooling measures implemented earlier, dated all the way back in Sep 2009.
The continued increase in demand and rise in property prices has prompted MAS to act swiftly in less than 3 months after the last property cooling measure in Oct 2012, which was to limit on the loan tenor and loan amount.
MAS is 'seriously' concerned with the increase in property investment spurred on by the current extraordinary low interest rate environment. Last year, property prices increase had outgrown the increase in economic growth. With the economic condition expected to slowdown and coupled with a large supply of up to 200,000 units to be completed in the coming years, the latest measure is to avoid risks of 'serious' market correction in prices later on.
The latest property cooling measure is likely to dampen investment demand as property investors have to live with much lower bank housing loans, come up with more cash at 25% of the Valuation Limit as well as fork out more Additional Buyer's Stamp Duties (ABSD).
Let's take a look at how are the different group of property buyers/investors affected?
Group 1 - Singaporean buyers of residential properties
Singaporeans who are first time buyers are the only group that will not be affected by the latest cooling measure. They are still qualify for housing loan quantum of 80% (or 60% housing loan if loan tenor exceeds 30 years or the loan period extends beyond age 65). The Additional Buyer's Stamp Duty (ABSD) is not applicable for this group as well.
Singaporeans, who are not first time buyers, are affected by the followings:-
(1) They will now have to come up with 50% / 60% down payment as the housing loan quantum is reduced from 60% to 50% for those with second housing loan and further lowered to 40% for those with third or more housing loans.
(2) For those who require housing loan with loan tenure of more than 30 years or the loan tenor extends beyond age 65, the loan quantum is further reduced to 30% for those with second housing loan or to 20% for those with third or more housing loans. (I doubt anyone will be getting anything more than 30 years for now).
(3) The minimum cash down payment is now upped to at least 25% of Valuation Limit. Valuation Limit is defined as the lower of current property value or purchase price.
(4) Cost of buying residential properties has also increased as Singaporeans has to pay ABSD of 7% for second purchase of residential property now and higher ABSD of 10% (upped from 3% previously) for third or more purchases. Note that the ABSD will not affect Singaporean buyers of HDB flats.
Group 2 - Permanent Residents (PRs)
For Permanent Residents, the changes affecting Singaporeans under (1) to (3) above will also affect PRs.
The main difference between Singaporean and PRs is that PRs will now have to pay ABSD of 5% for first purchase of residential property and a higher ABSD of 10% for second and more purchases (upped from 3% previously).
For a $500K property, the 5% ABSD works out to be $25K, which is not a small amount which the PRs have to start budgeting into their costs when buying their first properties.
Group 3 - Foreigners
For Foreigners, the changes affecting Singaporeans and PRs under (1) to (3) above will also affect foreigners.
Foreigners will however need to pay an even higher ABSD of 15% (upped from 10%) for first and more purchases of residential properties.
Group 4 - Non-Individuals (corporate entities)
Non-individuals or corporate entities (usually investment holding companies) investing in residential property can only qualify for housing loan based on Loan to Value limit of 20% only. This was reduced from 50% in Jan 2011 to 40% in Oct 2012 and now to 20% only.
Similar to foreigners, non-individuals will need to pay a higher ABSD of 15% (upped from 10%) for first and more purchases of residential properties.
(The impact on this group may not be as much, as the earlier sharp reductions to 50% loan limit would have already deterred these investors).
This latest measures which are more wide ranging and the earlier cooling measure in Oct 2012 on loan tenor seem to be targeting more at Singaporean and PR investors (except for first time Singaporean buyers) as these investors generally form the majority of the purchases in properties in Singapore.
These measures may deter some more investors from investing in properties in Singapore. But for those who are cash rich, eg. foreigners, and who prefer to park their funds here due to the financial stability, they may still find their way here despite the higher transaction costs. In fact, some of these foreigners do not need any bank housing loans and they would need to pay in cash anyway.
For now, property investors, including first time Singaporean buyers, may adopt a wait and see attitude. Given that the transaction cost of buying properties has increased, some buyers, like PRs, buying first property who are now required to pay 5% ABSD, may hold back their purchases. In the short run, investment demand may drop while prices may hold or even drop when the effects of the latest measure started to trigger in.
It is definitely a delicate task for MAS in maintaining a stable and sustainable property market. Let's hope the property market stabilises smoothly and the latest measure on loan limit and minimum cash down payment is really a temporary one.