What Are Property Cooling Measures and How Do They Affect Buyers or Sellers?

Despite the pandemic dampening the trends in many areas across various economic markets, the HDB resale market in Singapore has found its way back up and continues to soar. It has defied odds and made a remarkable recovery. According to analysts, supply may soon be outpaced by demand. It is made evident by the high subscription rates of recent BTO launches and increasing resale transactions. HDB resale prices are predicted to grow by 3% to 5% and sales volume is expected to exceed 25,000 units.

However, in order for the growth rate for resale prices of public houses to be sustainable, it needs to be in line with Singapore’s economy and income growth. Based on resale transactions over the past decade, mature and non-mature estates have seen an increase in price by at least 15% since 2011. 2021 also saw a narrowing gap in price premiums between mature and non-mature estates. This can be attributed to the improved connectivity and better-quality infrastructure of non-mature estates. The average price per square foot in non-mature states has increased by 15.6% from a year ago. Also exceeding previous years’ records were the number of million-dollar HDB resale transactions this year, which came up to an astonishing 147 buyers.

It does beg the question, why is the market peaking and what is pushing HDB resale prices higher? The answer is simple. The ongoing pandemic has impacted the supply of public housing. BTO projects became way behind schedule. Naturally, this led to a strong demand for resale flats. As a result of a higher demand, prices went up.

How Does the Rising Resale Prices Affect Singaporeans?

Of course, with the demand driving up the market price for resale flats, it makes it a steeper step for some to climb. Younger Singaporeans with less CPF and cash in their account will not be able to pick their ideal flats. They will have to sacrifice either financial liquidity or a convenient location to live in. Their choices may be limited to non-mature estates such as Woodlands, Sembawang, Jurong West, CCK, Bukit Batok due to limited financial capabilities. Or they may opt for older resale flats in mature HDB estates, taking into consideration that these flats do have shorter remaining leases.

With the property market booming and resale flat prices at eight-year-highs, it does pose problems for young, first-time home buyers. But is there anything in place to combat these difficulties?

Will Singapore’s Property Cooling Measures Help?

What are cooling measures? Property cooling measures are regulations designed to cool the Singapore property market by reducing demand and/or supply of property. At the current rate, the best hope for young, first-time home buyers would be to take advantage of the price dip that might happen with the implementation of cooling measures.

What cooling measures are there in place in Singapore now?

  • Additional Buyer’s Stamp Duty (ABSD)

This property cooling measure, introduced in 2011 and last raised in 2018, works to further dampen the demand from property investors. The rates were increased by 5% for individuals and 10% for entities. Additionally, it was also introduced for developers purchasing residential properties for housing development. This measures works to prevent the drastic rise of HDB resale prices by hindering Singapore Citizens buying their second residential property and PRs buying their first property. The imposition of the stamp duty works as a deterrence for individuals looking to purchase a second flat for investment purposes.

  • Restrictions on Private Property Ownership

Under this framework, private property owners must sell off their private property after purchasing a HDB non-subsidised flat. They also need to wait out the minimum occupation period before they can buy private residential property. This greatly reduces the demand for resale flats for those who own private properties.

  • Total Debt Servicing Ratio

Introduced in 2013, this relatively new framework limits the amount you can spend on your monthly debt repayments to 60% of your gross monthly income. This cooling measure is a permanent measure which helps borrowers manage their debt and keeps the property market stable and healthy. It seeks to ensure that loans are only issued to those who can afford them. It also prevents individuals from borrowing large sums of money to purchase a property just to earn profit. By doing so, more properties will be available for serious buyers looking for a home.

Although property prices continue to rise through these unprecedented times, keep an eye out for these cooling measures that have already been implemented in Singapore, and you might just find yourself a proud new homeowner in the midst of a global pandemic.

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