Paul Ho
New Launch Condominium: Latest Cooling Measures ensure that Singaporeans will one day be extinct
Table of Contents
On the 6th July 2018, another round of cooling measures for property buying and on new launch condominium has been imposed by Monetary Authority of Singapore (MAS) on the property market.
There are 2 components of impact, namely the Additional Buyer Stamp Duty (ABSD) and Loan-to-value ratio.
The least impacted groups of people from this new regulation are: –
- Singaporean currently with NO residential property and,
- Singapore Permanent Resident (SPR) with NO residential property.
This does not differentiate between whether the people are first-timer or second-timer buyers, the regulation only looks at the current residential property owned or mortgaged.
Image Credits: Lavender Old properties, Paul HO, iCompareLoan.com
On ABSD
Singapore Citizens who have no residential property and are buying One Residential property either a new launch condominium or a resale condo, have to pay only Buyer stamp duty (BSD).
Singapore PR who have no residential property and are buying one residential condo property or a new launch condominium have to pay only Buyer stamp duty (BSD) as well as an additional buyer stamp duty (ABSD) of 5%, same as before. No change.
On Loan-to-value
Singapore Citizens and Singapore PR with no residential property will now only be able to borrow up to 75% of the property price/value as compared to 80% previously.
Scenario of a Newly married or soon to be married couple
For a 1 million dollar property, a loan-to-value of 75% would mean the following upfront payment: –
|
On and After 6th July 2018 |
Before 6th July 2018 |
|||
| Property Price |
$1,000,000.00 |
$1,000,000.00 |
||
| Loan |
$750,000.00 |
$800,000.00 |
||
| Downpayment |
$250,000.00 |
$200,000.00 |
||
| (Min Cash) |
$50,000.00 |
$50,000.00 |
||
| CPF OA |
$200,000.00 |
$150,000.00 |
||
| Buyer Stamp Duty |
$24,600.00 |
$24,600.00 |
||
| Additional Cash or CPF OA needed |
$50,000.00 |
|||
Table 1: For the same priced property, Additional Cash or CPF OA needed, iCompareLoan.com
If a couple both under 35 years old (they would have 23% of their gross salary go into their CPF OA account). Just when they are ready to buy, they got hit by this additional $50,000 of downpayment which they need to fund from either Cash or Cash and CPF OA.
|
Person A |
Person B |
|||
| Salary |
$5,000.00 |
CPF OA Accumulation < 35 Years old @ 23% of Gross |
$4,000.00 |
CPF OA Accumulation < 35 Years old @ 23% of Gross |
| Net Take Home |
$4,000.00 |
$3,200.00 |
||
| Estimated Monthly Savings Cash / CPF OA |
$1000.00 |
$1,150.00 |
$800.00 |
$920.00 |
| Estimated Yearly Savings |
$12000.00 |
$13,800.00 |
$9600.00 |
$11,040.00 |
| Total Person A and B (Cash / CPF OA Savings) |
$21600.00 |
$24,840.00 |
||
| Years of savings |
2.31 |
2.01 |
||
Table 2: Estimated Savings of a couple from CPF OA and Cash, iCompareLoan.com
Assuming they do not have sufficient funds, they will either have to save up to 2.31 years in cash or 2.01 years in CPF OA to fund the $50,000 shortfall.
Check your mortgage affordability here.
Forced to Put off buying of New launch condominium or Resale Condo by 2 Years
This would put them back by 2 years from buying a property.
Would this cause birthrates to fall? It takes generally 5 to 6 years of working life to save up sufficient CPF OA to fund a property purchase plus a lot of cash. Noting that younger couples tend to save less during the earlier part of their careers as their incomes tend to be lower.
Moreover, we would expect that most young couples do not start saving until they meet the right person.
A further 2 years wait would be painful. And often they broke up even before they save up enough money for a property.
| Downpayment CPF OA |
$150,000.00 |
Downpayment CPF OA |
$150,000.00 |
| Downpayment Cash |
$50,000.00 |
Downpayment Cash |
$50,000.00 |
| Total Downpayment |
$200,000.00 |
Total Downpayment |
$200,000.00 |
| Total Possible Property Price (Assuming TDSR pass @ 80% loan) |
$1,000,000.00 |
Total Possible Property Price (Assuming TDSR pass @ 75% loan) |
$800,000.00 |
Table 3: The same downpayment of $200,000 @ 80% loan versus $200,000 downpayment @ 75% loan for a new launch condominium or a resale condominium, iCompareLoan.com
If you really must buy a new launch condominium or a resale condominium now, then instead of buying $1,000,000 property, you will only end up being able to support $800,000 only.
667 Square Feet new launch condo unit @ $1,500 per square feet = $1,000,000
If you are buying a $1,000,000 property at $1500 per square feet, you are only able to buy a property with a size of 667 square feet.
500 Square Feet new launch condo unit @ $1,600 per square feet = $800,000
After the new ruling, you can only purchase $800,000. What this means is, you will end up buying a smaller unit. When you buy a smaller unit, you will end up paying a higher per square feet price. In this case, we assume a price of $1,600 per square feet.
So the unit you will end up with is likely to become 500 square feet.
This will usher in an era of super tiny shoebox units and an ever escalating land price.
Loan to Value should not be reduced to 75% for people who do not own any residential property buying the first condo property
The loan-to-value should not be reduced to 75% for people who have no residential Property and are aiming to buy their first property. a Loan-to-value of 75% requires higher downpayment and delay the property purchase of couples. This delay of 2 years pushes back family planning by 2 years. Moreover, It will also be harder for women to delay childbirth, as there will be higher pregnancy complication risks for older women.
If couples still want to proceed, they may end up buying ever smaller private housing while encouraging the rampant rise of land price.
Restricting and setting the minimum size of a condominium unit to 70 square meters is the solution not More Taxes in the name of cooling
Singapore government, by refusing to impose a minimum size of a new launch condo unit will encourage the rampant rise of land price with ever smaller shoebox unit being built and higher per square feet price and of course an overheating property market.
With an overheating property market, more taxes in the form of ABSD is imposed. This is nonsense in our opinion.
If we limit the size of the smaller condominium unit to 70 square meters or about 753 sq feet, then it will be much harder for developers to bid high prices for land. There will have been lesser need to impose taxes for cooling because less overheating will take place.
Check this link for the Cooling Measures and ABSD tax rates.
|
Rates on or before 5 July 2018 |
Rates on or after 6 July 2018 |
|
|
SCs buying first residential property |
0% |
0% (No change) |
|
SCs buying second residential property |
7% |
12% (Revised) |
|
SCs buying third and subsequent residential property |
10% |
15% (Revised) |
|
SPRs buying first residential property |
5% |
5% (No change) |
|
SPRs buying second and subsequent residential property |
10% |
15% (Revised) |
|
Foreigners buying any residential property |
15% |
20% (Revised) |
|
Entities buying any residential property |
15% |
25% (Revised)# |
|
Plus additional 5% for developers^ (New, non-remittable)* |
Table 1: Revised Additional Buyer Stamp Duty – Cooling measures for Property purchase 6th July 2018, MAS, http://www.mas.gov.sg/News-and-Publications/Media-Releases/2018/Raising-Additional-Buyers-Stamp-Duty-Rates-and-Tightening-Loan-to-Value-Limits.aspx
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