Singapore Property: New Cooling Measures Return After Just 9 Months!

The government announced a series of property cooling measures late on Thursday (September 29), aimed at moderating demand and ensuring prudent borrowing amidst rising interest rates. The adjustments primarily involve tightening housing loan eligibility criteria and loan limits, and introducing a wait-out period for private property owners purchasing resale HDB flats.

Overview of the New Round of Singapore Property Cooling Measures

In a joint statement, the Ministry of National Development (MND), the Housing & Development Board (HDB), and the Monetary Authority of Singapore (MAS) said: “Market interest rates have risen significantly and are likely to increase further in the future. This will affect borrowing costs for home purchases. To ensure prudent borrowing and avoid future difficulties in servicing home loans, the Government will tighten the maximum loan quantum limits for housing loans.” The government also emphasised that this is a temporary measure and will be reviewed depending on overall market conditions and housing demand.

Next, we will list and analyse these cooling measures in detail.

I. Tightening of Housing Loan Limits

Stress Test Rate for Calculating TDSR and MSR Raised from 3.5% to 4%

The Monetary Authority of Singapore (MAS) will raise the medium-term interest rate used by private financial institutions to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) by 0.5 percentage points, from 3.5% to 4%. For non-residential property loans, the medium-term interest rate will be increased from 4.5% to 5%.

TDSR (Total Debt Servicing Ratio) refers to the portion of a borrower’s gross monthly income that goes towards repaying monthly debt obligations—including the loan being applied for—while MSR (Mortgage Servicing Ratio) applies to HDB housing loans.

Under the TDSR framework, a borrower’s total monthly loan repayments cannot exceed 55% of their monthly income. This cooling measure raises the interest rate used for the stress test from 3.5% to 4%. This means the government wants to ensure that even if interest rates rise to 4%, home loan applicants must still be able to maintain a TDSR of 55% or below.

By raising the medium-term interest rate floor, the government is tightening the criteria for assessing a borrower’s ability to repay their loans. This reflects the government’s expectation of rising medium-term interest rates and its concern about citizens over-leveraging on property loans.

This measure applies to housing loans where the Option to Purchase (OTP) or Sale and Purchase Agreement (S&P) is granted on or after September 30.

The actual interest rates for home loans will continue to be determined by private financial institutions.

Actual HDB Concessionary Loan Rate Maintained at 2.6%

For HDB flat buyers applying for an HDB loan, the government will introduce an interest rate floor of 3% per annum to compute their eligible loan amount for the first time. The current HDB concessionary interest rate of 2.6% is not affected by this cooling measure and will remain unchanged.

When calculating the eligible loan amount for HDB housing loans under the new rule, the interest rate used will be 3% per annum, or 0.1 percentage point above the prevailing CPF Ordinary Account interest rate, whichever is higher.

II. HDB Loan-to-Value (LTV) Limit Lowered from 85% to 80%

The HDB LTV limit has been lowered from 85% to 80%, applicable to new flat applications and complete resale applications received by HDB from today (September 30) onwards.

This revision does not apply to loans granted by private financial institutions, which remains at 75%.

The statement also mentioned that the tightened LTV limit is not expected to significantly affect first-time buyers and lower-income buyers, as they can receive housing grants of up to $80,000 when buying a flat directly from HDB. They can also receive grants of up to $160,000 when purchasing a resale flat. They can also use their CPF savings to pay for their flat, thus reducing the loan amount needed.

III. Introduction of a 15-Month Wait-Out Period for Private Property Owners Purchasing Non-Subsidised Resale HDB Flats

This latest round of cooling measures comes just nine months after the previous one was introduced in December 2021. The government noted that the HDB Resale Price Index has risen by more than 5% since the last round of measures, as of the end of the second quarter of 2022. In light of the “clear upward momentum in HDB resale prices” and with the aim of moderating demand, the government has imposed a 15-month wait-out period for private residential property owners before they can buy a non-subsidised HDB resale flat.

This measure takes effect after they have sold their private property. The new rule also applies to owners who sold their private property before submitting an application to buy a resale HDB flat. Before this cooling measure, private property owners only needed to sell their private property within six months of purchasing a resale HDB flat.

The new 15-month wait-out period does not apply to seniors aged 55 and above who are moving from a private property to a 4-room or smaller resale flat.

The wait-out period for private property owners who are first-time buyers wishing to apply for the CPF Housing Grant and Enhanced CPF Housing Grant to purchase a resale flat will remain unchanged at 30 months.

The new 15-month wait-out period is a temporary measure and will be reviewed according to circumstances.

“The Government remains committed to keeping public housing inclusive, affordable and accessible to Singaporeans. We will continue to monitor the property market and adjust our policies to ensure that they remain relevant,” the government stressed in its announcement. “We urge households to exercise prudence before taking up any new loans, and be sure of their debt-servicing ability before making long-term financial commitments.”

The Previous Cooling Measures were in December 2021

On December 16 last year, the government announced a series of cooling measures for the private residential and HDB resale markets, including raising the Additional Buyer’s Stamp Duty (ABSD) rates, tightening the Total Debt Servicing Ratio (TDSR) threshold, and lowering the Loan-to-Value (LTV) limit.

• The ABSD rates for Singapore Citizens and Permanent Residents (PRs) purchasing their first residential property will remain unchanged at 0% and 5%, respectively. However, for those buying their second, third, or subsequent properties, the ABSD was raised by 5 to 15 percentage points.

(For Singapore Citizens buying their second residential property, ABSD was raised from 12% to 17%;

For Singapore Citizens buying their third and subsequent properties, and PRs buying their second residential property, ABSD was raised from 15% to 25%;

For PRs buying their third and subsequent properties, ABSD was raised from 15% to 30%;

The ABSD payable by foreign buyers was raised to 30% across the board.)

• The government also tightened the Total Debt Servicing Ratio (TDSR) threshold from 60% to 55%, meaning that a new borrower’s total monthly repayments cannot exceed 55% of their monthly income.
• The LTV limit for HDB loans was lowered from 90% to 85%.

The round of cooling measures before that was introduced in July 2018.

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