Singapore Tightens Property Curbs to Cool Demand
In a bid to cool down the property market, the government of Singapore has announced new property curbs. These new measures are likely to slow the pace of price rise in the next few years. They include the new deferred payment scheme for uncompleted residential properties and the introduction of an interest rate floor on HDB-granted loans. The new laws also have implications for foreign homebuyers.
Interest rate floor for HDB-granted loans
As interest rates rise, Singapore is tightening property curbs to cool demand. The latest measures are designed to reduce over-indebtedness and discourage buyers from taking out mortgages on HDB flats. However, the measures are affecting the entire residential property market, not just HDB flats.
In the sixth round of property curbs, new residential loans are capped at 35 years and existing loans are now subject to tighter LTV ratios. The government is also increasing additional buyer’s stamp duty to 7% for first and second home purchases. These measures are expected to reduce sales by about 23.5% in the first year, though prices continued to climb until the end of 2013. However, the measures are already showing signs of cooling the market, with property prices down 10% from 2014 to 2017.
In an effort to cool the housing market, Singapore recently raised stamp duty on homes over SG$1 million. The government hopes that the new measures will discourage foreign buyers from purchasing homes. However, some worry that the additional stamp duty will not deter local ultra-rich buyers, as these buyers have been driving demand in the past year.
New deferred payment scheme for uncompleted residential properties
Singapore’s government recently announced that it will scrap the deferred payment scheme for uncompleted properties. The withdrawal of the scheme is seen as a necessary step to encourage more financial prudence among investors. The decision comes as private home prices in Singapore rose 8.3 percent between July and September this year and over 21 per cent since the start of the year.
Under this scheme, homebuyers have two months to exercise the option to buy a property. They are required to pay a 1% booking fee, stamp duties, and six months’ maintenance fee before they can move in. The remainder of the purchase price can be deferred for up to two years.
Although it seems tempting to postpone the payment of ABSD until the private property is completed, it is important to exercise due diligence before committing to a purchase. Such schemes may be beneficial for first-time homebuyers, who can defer their ABSD payment until six months after the completion of their private property.
Impact on foreign homebuyers
With prices surging past the $1 million mark in Singapore, the government is tightening property curbs in an effort to cool the market. While the measures won’t affect local buyers, the restrictions are likely to affect the mid to high-end market, where foreign buyers make up a larger share.
The new measures come at a time when Singapore is opening more travel lanes for vaccinated foreigners, which may reduce foreign demand. Although the new measures will discourage foreign buyers from buying properties, they will not discourage local ultra-rich buyers, who are responsible for many of the sales in the past year.
The new cooling measures will slow down demand for residential properties in the coming six months, but they may only be a short-term fix in an overheated market. In the meantime, home values and sales will likely rebound after the latest curbs. The last round of curbs in 2018 raised levies and lending limits. Despite these measures, Singapore’s market has proven resilient throughout the housing pandemic, and the low interest rates and rising economy have fueled demand for homes in the city-state.