The cooling measures of 2022 that came as a surprise?! Or did it?
We discuss the measures and the implications as we get into the last quarter of 2022.
Announcement at the start of 30th Sept
The government announced a round of cooling measures with a JOINT MAS-MND-HDB PRESS RELEASE on the 29th September 2022, or rather on the stroke of midnight of 30th September.
The main message and intention of the announced cooling measures:
Prudent Borrowing & Moderating Demand
With the way prices have been moving and the intentions of the Singapore government when it comes to housing, these measures are not unexpected. The triggers have been higher interest rates which are expected to continue rising, alongside the high demand for housing.
Measure 1: Interest rate calculation
The first measure is an increase of interest rates from 3.5% to 4% for loan calculation.
The idea is to ensure prudent borrowing by estimating a higher interest rate when considering loan amounts.
Interest rates will be hitting 3% and up, so such a measure is for ensuring prudent borrowing sooner rather than later. With the change, the loan amount you can get is decreased and would be something that affects demand for a certain segment of the buying market.
Land Betterment Charge (LBC) rate increase & other developer related measures
On the side, we have seen costs of development charges being increased, and thus making en bloc harder. Also, new launch rates are also poised to increase, as land costs prices increase deter developer bids.
If developers were to continue to pass on the costs to end-consumers for ever higher prices, it's uncertain if people will still continue to pay.
Measure 2: HDB Loans
The next measure is regarding HDB loans. There is an increase from 2.6% to 3% to compute HDB interest rate for HDB loan. However, the more significant shift is LTV shifting from 85% to 80%.
Note that HDB is designed to be affordable housing and not an investment tool. This cooling measure is targeted at those willing to pay for the $1 million HDB flats. The shifting LTV would make one think twice about making such huge bids for HDB flats. It's likely that the high-priced HDB flats will get affected, with lowered demand since buyers' buying power will be decreased.
Measure 3: Wait-out period of 15 months
Next, PPOs & ex-PPOs would need a wait-out period of 15 months before they are eligible to buy a non-subsidised resale flat.
There is an exception for retirement planning, for Seniors above 55 years old looking to move into a 4-room flat (or smaller), this wait-out period will not apply to them.
This is considered a temporary measure which can be adjusted anytime based on the situation in the Singapore property market. As previously mentioned HDB flats are not for investment, as they are protected by the government, for nation building. Thus, for those looking to cash out and move into HDB, this measure is meant to prevent such moves without significant drawbacks.
Implications
Would private property owners decide to sell and then wait for 15months before moving to a HDB flat? If these owners are desperate to sell now, then yes. However there are more likely scenarios we see.
For owners above 55 years old, they can move to a 4-room HDB flat comfortably.
For those PPOs below 55 years old, it's important to think twice. Before selling, it's important to consider the wait-out period of 15 months which means they might need to pay high rentals and thereafter, the likely conclusion might be just not to sell.
Next, for current HDB owners, would they next consider a private property or would they choose to shop in the HDB market? Choosing to purchase a private property would affect their ability to return to HDB due to the wait-out period. Or perhaps, they can choose to stay in private till 55 years old then moving back to HDB, but this means they need enough money to cover their retirement sum in CPF, otherwise it creates another challenge in having enough money for their property purchase.
All in all, there are different implications for different people due to these measures and it's most important for you to consider your personal context, intentions and requirements.
Summary
The most important point to note is that HDB flats are not for investment, as the government remains committed to keeping public housing inclusive, affordable and accessible.
In other news, for everyone who is looking to make moves in the property market, be it selling or buying, these series of measures would make one think twice. It's vital to get the right advice and seek out professionals that can tailor their advice based on your personal special situation, both financially and otherwise.
Aaron give his take on the 2022 cooling measures! Will the market crash? Watch what Aaron has to say.