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The love affair that Singaporeans have had with property has been a torrid one. Timing, like in all great love stories, also plays a part in this romance. For some, a quick turnaround has proven to be the most satisfying and rewarding. For others, a lifetime commitment yields the greatest returns. Unlike healthy, normal inter-personal relationships, however, there has always been a third party exerting a strong influence in the background – the government.

 

Since 1975, housing prices have been on a gradual climb, interspersed with peaks and sudden dips. The most drastic plunges occurred in 1985, 1999, 2009, on the backs of recessions brought on by the collapse of an overheated economy. In such scenarios, rampant speculation in the asset drives the price beyond its intrinsic value or possible future price, with nothing else sustaining the current market price except for pure greed and optimism itself. This prices genuine home seekers out of the market.

 

When the realisation that the price increases are implausible sets in, it leads to a pullback of investment and a retreat of prices. Such rapid devaluations of property have a social destabilising effect. For home owners, it could mean that their mortgage value is higher than the market price of their property, leading to margin calls by the bank or expected income. To mitigate the negative effects of both scenarios, the Singaporean government has adopted a stance of prudent management of the property market.

 

There have been eight rounds of cooling measures over the last seven years since September 2009. They have generally kept prices in check while allowing some room for investment. Love them or hate them, it’s especially timely now to review the list of measures implemented by the government in light of the slowing economy and the loudening calls for them to be repealed or eased.

2009: End of interest absorption scheme

By 2009, the writing was on the wall that a speculative bubble was forming around the housing market. The first effort to rein in runaway speculative activity was to do away with loan plans such as Interest Absorption Schemes (IAS) and Interest-Only Housing Loans (IOL) which were offered to buyers of uncompleted private residential properties. IAS made the decision to purchase uncompleted properties easier by convincing potential buys to take up a loan but only start paying interest on the loan after the building’s completion. This technically enabled a property to be bought and sold with free credit or cheap credit, in the case of an IOL.

2010: SSD & LTV limits

Seller's Stamp Duty (SSD)

This was a new tax imposed on sellers on all land and property sold within two months of purchase. The effect of which was to lengthen the time a seller had to wait before taking a profit on the investment property. The move quelled speculative activities, which was seen to be driving up property prices.

 

Tighter Loan-to-Value (LTV) limits

Loan quantum limits were first restricted to 80% of a property’s sale price. This was enacted in response to banks issuing larger loans. In addition to reducing an over leveraged position by individuals, it also curtails risky loans such as the kind that precipitated the U.S sub-prime crisis.

2011: Additional Buyer's Stamp Duty & Increased SSD

 

Additional Buyer's Stamp Duty (ABSD)

This was increased to its current levels to provide a financial disincentive for non-residents to buy a property and citizens and permanent residents to purchasing two or more properties. This duty acts like a tax on purchases and seeks to price out groups of potential buys and favour others. In this case, it was first-time resident buyers who were excluded from this.

 

Seller's Stamp Duty (SSD)

This duty was again raised by more than five times the original rate to further stem speculative activity.

2012: Restricted loan tenure

By 2012, it was observed that banks had begun offering loans with longer tenures, with almost half of all new loans being over 30 years. This allowed individuals to secure larger loans and make it easier to secure a property that might be beyond one’s means. This was then capped at 35 years, and making any loan over 30 years subject to more stringent LTV limits.

2013: Even more tightening measures

 

 

Tighter Loan-to-Value Limits

The loan limits were tightened for corporate entities and borrowers of second and subsequent loans.

 

Restricted loan tenure

The amendment to maximum loan tenure affected HDB properties in this latest change. It was moved in line with HDB loan limits, which had a maximum tenure of 30 years and loans over 25 years subject to tighter LTV limits.

 

Total Debt Servicing Ratio (TDSR)

Its purpose was to force home owners to borrow within their means by taking into account all debt incurred and limiting total monthly repayments to 60% or less of a home buyer’s salary.

 

Additional Buyer's Stamp Duty (ABSD)

Further tweaks to the tax were applied on people of selected nationalities due to free trade agreements. Singapore Permanent Residents also have to pay 5% ABSD on their first property, a 2% increase since 2011.

 

Mortgage Servicing Ratio (MSR)

Similar to TDSR but applying only to HDB flats and Executive Condominiums (ECs), this ruling limits the proportion of mortgage repayments to monthly gross income at 30%.

2014, 2015 and 2016: TDSR

Total Debt Servicing Ratio (TDSR)

The TDSR limits have been eased for those with an existing mortgage on their home and those with an investment property. The first group of people is now allowed to refinance without adhering to the previous 60% limit. The second group of people is now allowed to exceed the TDSR threshold provided a bank credit assessment is passed and a debt reduction plan to repay at least 3% of the outstanding balance on the property loan over three years is adopted.

 

In the period between 2009 until 2013, public and private housing rose by a further 50% before finally finally stabilising with the last tranche of measures in 2013. With the first steps to reverse them finally being taken this year, all eyes are on when the best time to enter the housing market is.

 

 

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