Essential Tips for Home Owners on the New Home Financing Rules
At over 90%, Singapore has one of the highest home ownership rates in the world. Property prices remained fairly low since the early 1990’s until around 2006 when the government introduced measures to boost the sector. Some of the measures introduced then included:
- Slashing of down payment required for purchasing HDB property by half from 10% to 5%
- Relaxation of foreign ownership rules
- An increase in the Loan to Value (LTV) ratio from 80% to 90%
These moves caused a hop in the overall property index by about 30% between 2006 and 2007.
The global financial crisis which prevailed over much of 2008 and 2009 saw the property index fall and prices plunge. To avert a property bubble, the government introduced curbs to cool down the sector such as removal of the interest absorption scheme and interest only housing loans in Q3 of 2009. In addition, introduction of new seller’s stamp duty for residential properties sold under one year. Furthermore, the government also introduce restrictions on concurrent HDB home ownership in 2010.
Singapore’s growth in residential housing has since been appalling at less than 1% since 2009 and it recorded negative growth since 2014. The worst contraction is in the third quarter of 2015 with sales diving a whopping 39%.
The Monetary Authority of Singapore (MAS) announced new rules that aim at relaxing mortgage financing in early September 2016. According to MAS, the move will not spur demand for new home loans rather ease the debt burden on existing homeowners by improving financial prudence.
Going forward, an existing owner occupier will be exempted from the 60% limit on their total debt servicing ratio. This is part of the Total Debt Servicing Ration framework that was announced in 2013. This move reiterates the government’s unwillingness to remove the cooling effects.
What does this mean for the consumer? For the potential homeowners, the below market tips from the changing rules can change the way they approach the market.
The Market Conditions Favor the Buyers
Buyers can take advantage of prevailing market conditions to scope for real bargains. According to the Urban Redevelopment Authority, prices for condominiums fell by as much as 0.3% in 2015. This is largely due to low demand. From the total 67,765 private housing units supplied, almost 10% (6,744) remained unsold.
Buyers are Spoilt for Choice
Secondary sales figures have been on the rise, partly due to the controls introduced earlier. In 2015, the number of home resale transactions grew by 11.5% from the 2014 figures. However, HDB started a 12,000 flats program in late 2015 and a Build to Offer (BTO) exercise that is to bring the total supply to 18,000 units. For buyers, this is good news due to the variety and cost saving implications of the market dynamics.
Buyers Can Brace for Better Pricing
The Resale Price Index recorded a net 0.2% drop in prices over the 2nd half of 2015. Coupling this with the new supply by HDB of flats as well as BTO units, sellers, as well as landlords, have no option but to reshape their asking prices.
The bottom line is that real estate prices in Singapore will continue on a lull as the government retains the cooling measures on the sector. We encourage prospective homeowners to take advantage of the market conditions and secure a worthy deal.
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