The first reactions to the 2021 Cooling Measures that take effect from 16th December 2021.
We go through the effects this round of cooling measures will have on the property market, and discuss if it aligns with Aaron's opinions and evaluation of the market!
Summary: Cooling measures applicable from 16th Dec have 3 main items:
Review of Additional Buyer's Stamp Duty (ABSD) rates
Total Debt Servicing Ratio (TDSR) tightening of threshold
Loan-To-Value (LTV) limit tightening
The main impact will be felt in the private market due to the TDSR tightening. Read on for details!
Announcement of Cooling Measures
The announcement of the latest cooling measures came late at night on Dec 15th, to take effect from Dec 16th onwards. The announcement was timed as such to prevent a rush of last minute buyers going to show flats in order to avoid being under the new rules in imposed as part of the cooling measures. It's unlikely that one would have enough time to get the OTP signed from the time of announcement to 16th December.
The first of 3 main changes is the higher Additional Buyer's Stamp Duty (ABSD). This likely would only affect the richer buyers who are already purchasing units with ABSD, as first time buyers are all not affected by the rates hike.
In Aaron's opinion, it is not worth it to pay the ABSD if you are looking to purchase a property to invest and take profits as a significant chunk of the potential gains would already have gone to the payment of this ABSD. For foreigners, the rise from 20% to 30% is really high and honestly, it's unlikely that there are many foreigners willing to pay this additional cost for a property.
Thus, the overall impact of this change shouldn't be that high as it curbs only a segment of the market, that is the richer buyers that can afford purchases with ABSD.
Tightening of TDSR
The second change is the tightening of Total Debt Servicing Ratio (TDSR). We see this as the most significant change with the most impact. The private market would be most impacted as the potential budget of buyers are going to be affected with a decreased possible loan amount.
For a change from 60% to 55%, possible loan amounts will drop significantly and for some buyers, their budgets could drop around 100k due to this. This tightening of TDSR thus impacts the new launches and resale private properties the most.
Note that EC and HDB units are unaffected by this change as they use the Mortgage Servicing Ratio (MSR) for computation rather than TDSR.
LTV limit tightening for HDB
Lastly, the Loan to Value limit has changed from 80% to 85% for HDB housing loans. The main demographic we see impacted by this would be buyers that are young couples with a high income but not having enough funds to pay the down payment. Previously a 90% loan would have been helpful for them, but with the new measure their down payment amount increases. This increase in down payment might then impact their buying strategy.
If buyers are not taking a HDB loan, the amount is still the same at 75% for bank loans so nothing much has changed there. More or less, the this limit tightening would affect buyers considering HDB loans but the impact should not be too widespread. The key here is more of a reminder and a prompt, to get buyers to perk up their ears and consider their budgets carefully before proceeding with a bit more caution.
Evaluation of measures
As we have discussed, the most significant measure out of the 3 is the tightened TDSR, and the main effect is actually to control the loan amount permissible. Rather than it being a direct measure to push prices down, it's more accurate to say these measures are designed to be a reminder for buyers to be prudent about their property purchase. Don't purchase a property that is at too high a price for you and become overleveraged.
Based on the measures seen, we definitely see the marketing cooling with transactions slowing down. With this announcement in December, coupled with a short time gap between now and the upcoming Chinese New Year on 1st Feb, January will likely be a slow one in the property market for 2022.
Hear directly from Aaron (in his singlet, no less) with his natural reactions in this quickfire video released just in time after the cooling measures were announced!