New Property Cooling Measures and ABSD Rates 2018 (Latest)
On July 6th, 2018 new property cooling measures were introduced by the government of Singapore as a move to regulate residential property prices.
This came as a shock to many people since the report didn’t give much time to adjust to the changes. In any case, the announcement saw developers in a frenzy at the last-minute struggling to launch sales before the measures could take effect.
According to Augustine Tan, the president of Redas, the cooling measures will reduce residential property demand from investors and foreigners since the cost of home ownership had risen.
However, the government of Singapore put the rules in place to keep prices within the economic range of the country.
The property euphoria that hit the country saw a 9% increase in private property prices. In light of this, the government raised the Additional Buyer’s Stamp Duty (ABSD) and tightened the Loan-To-Value limits (LTV) on residential property purchases.
In the last two years, en bloc sales have dominated the market which saw the rise of residential redevelopment site prices, enriched developers and owners and also caused friction among many.
The property market became dramatically overheated with collective sales.
As it stands, many people are wondering who stands to benefit from the new cooling measures and who stands to lose.
The ABSD affects some categories of residential redevelopment purchases. On the other hand, buyers and sellers are engaged in understanding what the cooling measures mean for their loans and investments.
Property Prices Have Gone Up Since the Rage of En Bloc Fever In 2017
The blazing property market in Singapore came to light when a wave of en bloc sales on residential sites rose.
The Singapore property market is one of the hottest in the world and definitely dramatic enough to watch.
In the en bloc frenzy, many owners benefitted from selling their property at double the price they would get if sold individually. Throughout 2017, many residential redevelopment properties that launched for sale attracted many previews.
2017 was the peak of the collective sale as many people focused on financial gain rather than sentiment. During this rage, more than S$8 billion deals were transacted in 2017.
This is one of the highest numbers ever witnessed in the last decade.
Property prices have been on an unhinged rise since the collective sale euphoria that saw to the end of the housing market slump.
Seeing this, the government put in place cooling measures that seem to be slowing down the excitement of residential property sales.
The rise in residential property prices and the popularity of collective sales led developers to come up with pricing strategies that exercised caution.
The Central bank even gave a warning regarding the extreme ebullience of the property market. The bank cited the competition in land bids.
The main reason why prices went up was the rush to acquire redevelopment sites in city-states. To most developers, redevelopment is a way of putting the land to excellent use.
Government’s Sudden Implementation of New Cooling Measures
The new wave of cooling measures put to effect by the government of Singapore has been met with mixed reactions across the board. The new cooling rules have therefore sparked discussions from those in the property market.
- The government’s perspective
As the government sees it, the cooling measures are essential to curb the fever of en bloc sales. It is also a bid to ensure that residential property prices stay in line with economic fundamentals. Through the newly introduced measures, the property market will not take a nose dive for the worst.
In support of the government’s move, the ministry of finance together with the ministry of national development and monetary authority of Singapore jointly stated that the price increase would have been destabilizing if regulatory policies didn’t come into effect.
- Real estate Developers Association of Singapore
Despite the government’s defense of the new policies, the association feels that the government’s justification of the policies is lacking proper reasons. Their statement expressed their discontentment with the policymakers’ decision.
Elsewhere, developers feel that the high supply of residential properties is bound to get worse as a result of the measures. According to Mr. Tan, president of Redas, many buyers will desist from purchasing a second residential property.
All categories of buyers are affected by the new cooling measures. The night before they took effect, many buyers flocked to new launches to try and secure their dream units before the implementation.
The suddenness of the move by the government is among the reasons why the implementation was met with mixed reactions. As stated by JLL, the government’s move was too haste barely allowing any time for adjustment.
What Are the Changes?
Singaporeans incurred ABSD rates of zero percent for the first purchase, 7% for the second purchase and 10% for all subsequent purchases before July 6th.
Now after July 6th, they’re subject to the same rates for the first purchase, 12% for the second and 15% for all other purchases after that.
- Permanent residents buying their first residential property are subject to a 5% rate before and after the cooling measures. A 10% stamp on their second and all other purchases was previously applied, but under the new policies, the rate is up to 15%.
- Foreigners were subject to 15%, but after July 6th, the ABSD rate is 20% for any residential property purchase.
- Entities were subject to buyer stamp rates of 15% for residential properties which are now at 25% after the new measures came into effect. Furthermore, all developers will pay an extra 5%.
Unlike the ABSD rates that exempt first-time purchases for Singaporeans and permanent residents, the Loan-To-Value limit applies to all. First time home buyers will also need more Central Provident Fund (CPF) for a down payment.
A 5% tightening now binds all housing loans that are given by a financial institution. However, loans granted by HDB are exempted from this charge. LTV limits for mortgage withdrawal loans (MWLs) will now be 75% if the buyer doesn’t have an outstanding loan. If the borrower is purchasing a second residential property, the LTV limit will tighten to 45%.
- For a first-time housing loan, the LTV limit was 80%, which translated to 60% if it lasts 30 years or if it stretches even after the borrower is 65 years. Under the new measures, the rates are now 75% and 55% respectively
- For the second purchase, the rates applicable were 50% or 30%, but the new rates are now 45% and 25% respectively.
- For all third and subsequent housing purchases, the rates stood at 40% or 20%. Under the July 6th implementation, they now stand at 35% or 15% respectively.
The Impact of The New Cooling Measures
The new cooling measures have very significant impacts that are felt across the board. The wave of shock that buyers and developers experienced is bound to make buyers retreat for a while as they watch what happens. Other impacts include:
- Buyers have more bargaining power
Developer dominance has been in effect before the new cooling measures came into effect. Now, buyers have more ability to bargain and get better deals. Besides, future prices may swing in favor of buyers.
- Entities and developers have it the worst
During the 3rd quarter of 2017, developers were very aggressive as en bloc sales dominated the property market. Properties sold for almost twice as much collectively than they would if sold as individual units. Since the implementation of the new cooling measures, developers and entities are feeling the hit more than other buyers.
On top of the ABSD rates and LTV limits enforced on developers, buyers have retreated in a bid to observe where the market goes. This is prompting developers to offer discounts in an attempt to pull back buyers.
As JLL said, en bloc sales will still have a spot in the market, but their dominance has been significantly stripped.
- Rational buying is setting back in
Last year was the peak of the heat of the moment property purchases. Many buyers didn’t consider their purchases as investments or take time to think over the decisions. With the new cooling measures in place, buyers are now forced to understand property price growth. Buyers are slowly beginning to realize that past trends may not apply to today’s property market.
- Private residential property prices stabilized
Individual home prices have been on a downward spiral for the better part of half a decade. The surprise measures came to rescue the drowning values. After the new cooling measures took effect, the private property prices began to stabilize.
How the New Cooling Measures Affect Singapore En Bloc Sales
The sharp rise of en bloc sales prompted the new cooling measures due to the buzz they brought to the property market. However, the new cooling measures don’t seem to be in favor of collective sales.
As developers receive the hardest hit, property consultants still maintain that there’s hope for collective sales.
Despite the immediate measures that sent buyers, developers, and even observers into a shock, en bloc sales will not completely stop.
It is expected that the collective sales rates will significantly decline, but after an adjustment period, it will stabilize.
The main reason is that buyers have now taken a step back from purchasing. As a result, developers have to entice buyers with deals and discounts. Home buying in Singapore will soon become costly due to the new ABSD rates and the LTV limits.
Also, developers will now revise the prices they are ready to pay for land as a result of the land acquisition rates decreasing.
How It Affects Developers New Launch Sales
The new cooling measures have set many developers steps back as they now need to regroup and change tactics. The confidence is now gone, and they have to lure buyers into their new launches. It is expected that after the cooling prices, developers have to offer discounts.
The prices are expected to drop up to 10% of the Average Selling Prices (ASP). According to property consultants, high-end homes will face more adjustments as developers have already begun trimming 5-10 off the ASP.
For new launch sales to sell developers will now need to realistically price the residential properties according to their location and other attractions.
The new cooling measures by the government of Singapore came as a surprise to all, but many agree that they are necessary for ensuring the country’s economic stability.
The ABSD rates and LTV limits restructured the property market slowing down the fast-paced property prices increase.
In this whole process, the most affected are developers and entities purchasing residential properties.
Although buyers also need time to adjust to the measures, developers will now be more selective when buying land for residential redevelopment.
Although despair and confusion took hold after the announcement, people are beginning to delve into what the measures mean for the future.
This has led to a state of normality resuming since buyers are no longer buying for the sake. Moreover, developers will now have to price their new launch property realistically giving buyers a lot of bargaining power.
Despite the views of property consultants that the new cooling measures would alienate buyers and developers, the cooling measures are here to stay.
The government is also closely watching the property market. More cooling measures will be enforced if necessary.