Singapore Real Estate Cooling Measures: Comprehensive Guide

The performance of the property market has always been subject to volatile market conditions. However, Singapore has multiple rounds of cooling measures to rely on for regulatory awareness. Like it or not, in the round of cooling measures released in December 2021, Singaporean property buyers are once again facing higher Additional Buyer’s Stamp Duty (ABSD) rates and stricter loan restrictions.

Introduction to Singapore’s Property Cooling Measures

Since its first appearance in 2009, various cooling policies such as Seller’s Stamp Duty (SSD), Additional Buyer’s Stamp Duty (ABSD), Loan-to-Valuation (LTV), Total Debt Servicing Ratio (TDSR), Mortgage Servicing Ratio (MSR), and Additional Conveyance Duties (ACD) have emerged in the property market.

The Singapore government has been progressively introducing cooling measures to regulate our property market. These measures affect both homeowners and investors, and impact all Singapore Citizens, Permanent Residents (PRs), and foreign buyers—albeit to varying degrees. Whether the terms mentioned above are familiar to you or seem like a foreign language, as long as you are buying or selling a home in Singapore, these cooling measures apply to you.

These cooling policies encourage financial prudence and align the buying and selling behaviour of Singaporeans with our economic fundamentals. In this article, we will provide a comprehensive history of Singapore’s cooling measures and explain their practical effects and how they impact you.

Why Cooling Measures Are Important

Cooling measures are important because they react and respond to Singapore’s housing market and encourage financial prudence in property investment. They have a significant impact on purchasing behaviour and can influence the performance of the property market.

Cooling measures also have a significant impact on home buying behaviour as they discourage certain practices, such as purchasing without sufficient cash or engaging in short-term property speculation.

A Comprehensive Look at the 10 Rounds of Singapore’s Property Cooling Measures

September 2009: Removal of Interest Absorption Scheme (IAS) and Interest-Only Loan (IOL) for All Private Residential Properties

Before this cooling measure, the IAS and IOL allowed buyers to purchase properties under construction with only a 10-20% down payment until the project was completed. These schemes encouraged property speculation in an active market as buyers could buy and sell these properties without a significant impact on their finances.

As a result of these initial measures, buyers could no longer easily buy and sell properties under construction without substantial capital. This led to reduced enthusiasm for private residential transactions, thereby cooling the property market.

February 2010: Introduction of Seller’s Stamp Duty (SSD) and Reduction of Loan-to-Value (LTV) Ratio

In response to the market heating up even after the 2009 cooling measures, the government moved to tighten credit supply in the property market and promote financial prudence among buyers. This was a pre-emptive move to temper buyer sentiment before a financial bubble could form amidst low interest rates and a positive economic outlook.

An SSD of up to 3% of the sale price was imposed on all residential properties sold within the first year of purchase. The purpose of the SSD was to discourage short-term speculation that could distort underlying prices. Consequently, long-term owners or owner-occupiers were not affected. On the other hand, investors looking to quickly flip properties for a profit had to reconsider the impact of the additional SSD on their returns.

The LTV for all housing loans was reduced from 90% to 80%. The decision to lower the LTV was to send a clear signal to financial institutions to maintain their prudent lending standards to ensure the sustainable development of the property market. The result was that buyers now had a reduced ability to borrow, thus taking on less credit risk. Buyers who initially hoped to finance a large portion of the property’s value now had to pay more out-of-pocket for the down payment, effectively discouraging credit-based home purchases.

August 2010: SSD Extended to Properties Sold Within 3 Years of Purchase; LTV for Second Home Loans Reduced from 80% to 70%

Due to a significant 11% increase in the private residential market in the first half of 2010, the government deemed the market to be very active. Therefore, it was necessary to align the property market with more moderate economic growth to ensure that an economic adjustment would not cause the property market to collapse. As always, the measures taken were in line with increasing financial prudence for both buyers and sellers, thus minimizing credit risk.

The SSD was extended to include properties sold within 3 years of purchase. However, the longer the property was held before selling, the lower the SSD.

With this progressive system, sellers were now more motivated to hold their properties for a longer period before selling, as the SSD could take a significant portion of their profits from the property sale. With buyers and sellers holding onto their properties for longer, transaction volumes decreased, and property market prices faced resistance to increase.

The LTV for a borrower’s first home loan remained at 80%, while the LTV for a second home loan was reduced from 80% to 70%.

Consequently, the minimum cash down payment for a second loan was raised from 5% to 10%.

This specific set of measures meant that buyers seeking asset appreciation after their first property now had to be more cautious when financing their subsequent properties. It’s clear that to promote equality for first-time homebuyers in the market, there was a trend towards limiting the purchasing potential of owners beyond their first property. However, this came at the expense of buyers who might have had to consider other methods to finance their next home or even look for lower-priced houses due to reduced borrowing capacity.

January 2011: SSD Holding Period Extended from 3 to 4 Years, Rates Increased; LTV for Second Loans from 70% to 60%

This time, along with extending the SSD period, the government also significantly adjusted the SSD rates, reaching 16% (for properties sold within the first year). This meant that selling a property within the first 2 years of purchase would incur a huge penalty, even in the then-bubble market where property prices rose by more than 10% in a year!

The LTV for second home loans was once again reduced from 70% to 60%, and the LTV for all non-individual buyers (e.g., companies, trusts, and collective investments) was reduced to 50%.

December 2011: Additional Buyer’s Stamp Duty (ABSD) Introduced for Singapore Citizens and Permanent Residents

A 3% ABSD was applied to all:

• Singapore Citizens purchasing their third or subsequent property

• Permanent Residents (PRs) purchasing their second or subsequent property

A 10% ABSD was also applied to foreigners purchasing residential property in Singapore.

In cases of multiple buyers, the highest (more stringent) applicable rate was charged.

The ABSD measure is a flat rate that complements the existing Buyer’s Stamp Duty, which is applied progressively to the sale price (Buyer’s Stamp Duty, or BSD) — 1% on the first S$180,000, 2% on the next S$180,000, and 3% on the remainder).

October 2012: Maximum Home Loan Tenure Capped at 35 Years

Long-term loans were now disadvantaged, with lower LTV for first and second (or more) home loan buyers.

Specifically, the LTV would decrease by 20% if the loan tenure:

• Was longer than 30 years, or;

• Extended beyond the buyer’s age of 65

The introduction of differentiation for long-term loans was another key point, as it changed how buyers financed their loans. Generally, buyers want to maximize their loan tenure because it reduces their monthly repayments, which would otherwise eat into income used for savings or other expenses. Long-term loans provide buyers with the flexibility to refinance their mortgages—for example, to purchase other properties or to pay off the loan faster. By capping the maximum tenure and linking it to the buyer’s age, buyers were effectively restricted to completing their property investment plans before the age of 65.

January 2013: ABSD Revised to Increase Taxes; LTV Ratios Tightened; Minimum Cash Downpayment for Second and Subsequent Loans Raised Again; Measures for HDB Flats Introduced

The ABSD was revised again, imposing more taxes on Singapore Permanent Residents, foreigners, and other buyers purchasing more than one residential property. The ABSD was increased across the board by 5-7 percentage points, and in addition, ABSD was imposed on PRs purchasing their first residential property and on citizens purchasing their second.

New ABSD rates in January 2013:

For borrowers with more than one housing loan, LTV ratios were also tightened.

For second home loans, the LTV was reduced from 60% to 50%.

For third and subsequent home loans, the LTV was reduced from 60% to 40%.

New LTV ratios in January 2013:

The 20% disadvantage for long-term loans continued to apply to all LTV ratios.

Finally, the minimum cash down payment for second and subsequent loans was raised from 10% to 25%.

In response to the increasing competition for HDB flats, measures specifically targeting HDB were also introduced to reduce short-term, high-credit transactions among Singapore Citizens and Permanent Residents.

Homebuyers seeking a loan to purchase an HDB flat:

• The Mortgage Servicing Ratio (MSR) from financial institutions was capped at 30% of their gross monthly income.

• The MSR from the Housing & Development Board (HDB) was capped at 35%, down from the previous 45%.

Singapore Permanent Residents:

• Will no longer be able to rent out their entire HDB flat.

• Must sell their HDB flat within 6 months of purchasing a private residential property in Singapore.

June 2013: 60% Total Debt Servicing Ratio (TDSR) Applied to All Property Loans from Financial Institutions

All financial institutions in Singapore were required to verify that a borrower’s total debt (including non-housing loans) was below 60% of their total income before approving a loan. Due to the different nature of loans and interest rates, the Monetary Authority of Singapore (MAS) has a standardized method for calculating TDSR.

The introduction of the TDSR loan eligibility standard was another significant milestone in the series of cooling measures. Since TDSR is calculated based on existing loan repayments, other measures affecting the loan value, such as LTV and loan tenure, now also come into play. Any changes to these factors can severely affect a buyer’s eligibility for a loan.

For example, a 45-year-old buyer who takes a shorter loan tenure (20 years instead of 35) to get a higher LTV ratio (50% instead of 30%) would have to bear higher monthly mortgage payments compared to choosing a longer tenure. The higher mortgage payment increases the TDSR, potentially exceeding 60% and making them ineligible for the loan. Therefore, to meet the new TDSR requirement, the buyer is forced to extend their loan tenure (beyond 65 years) to get lower monthly payments, but they now face the problem of a lower LTV (30%) and must cover the additional 20% of the value without borrowing. With so many restrictions from interacting measures, it became much more difficult for buyers of multiple properties to finance their loans.

December 2013: Measures to Tighten Purchases of Executive Condominiums (ECs) Implemented

The Mortgage Servicing Ratio (MSR) was capped at 30% of the borrower’s monthly income, now applying to EC purchases. Second-time applicants wishing to buy an EC directly from a developer would have to pay a resale levy (similar to BTO flats).

The cancellation fee for EC applications was reduced from 20% to 5%.

March 2017: SSD Holding Period Shortened; Rates Reduced Across All Tiers

 In response to a slowing property market, the government reversed some cooling measures.

The SSD holding period was reduced from the previous 4 years to 3 years. The rates for all tiers were uniformly reduced by 4%.

The TDSR requirement was also removed for Home Equity Loans with an LTV below 50%. This allowed more people to borrow against the equity in their homes to obtain additional cash for retirement needs.

July 2018: LTV for All Housing Loan Categories Reduced by 5%

This round of cooling measures targeted ABSD and LTV ratios to moderate rapidly rising property prices.

For all home loans issued by financial institutions, the LTV for all categories was reduced by 5%.

With the exception of Singapore Citizens or Permanent Residents purchasing their first residential property, the ABSD for all other individuals and entities was increased.

• The ABSD for all other individuals was raised by 5%.

• The ABSD for entities was raised by 10%.

December 2021: Higher ABSD Rates, Stricter Loan Limits

Firstly, the TDSR has been reduced from 60% to 55%, which means that for every S$10,000, financial institutions will assess S$500 less for a mortgage loan.

Every S$500 difference is approximately equivalent to a S$100,000 reduction in loan amount. This is based on a 3.5% TDSR stress test interest rate and a 30-year loan tenure for a private property.

Secondly, the government has also revised the LTV for HDB loans from 90% to 85%.

The LTV limits set in that December 2021 round were as shown in the table below (a snapshot of that round):

Loan-to-Value Ratio (LTV) (Effective from 16 December 2021)

*If loan tenure exceeds 30 years or extends beyond age 65

*Total Debt Servicing Ratio (TDSR) revised from 60% to 55%

The LTV limit for HDB housing loans was lowered twice after that round: from 85% to 80% with effect from 30 September 2022, and from 80% to 75% with effect from 20 August 2024. The HDB-loan LTV limit is up to 75%; it is pro-rated where the flat’s remaining lease does not cover the youngest applicant to the age of 95.

Disclaimer: Please note that all LTV percentages are subject to an individual’s financial income assessment, including by the financial institution or HDB, as applicable. For HDB loan borrowers, you have to first apply for an HDB Flat Eligibility (HFE) letter and meet its eligibility conditions.

Most importantly, the ABSD for purchasing residential properties was also significantly increased. For citizens buying a second residential property, the increase from 12% to 17%, and for those buying a third or subsequent property, the increase from 15% to 25%, may deter many from purchasing additional residential properties.

The ABSD rate for Permanent Residents buying a second residential property also rose from 15% to 25%, and if they purchase a third or subsequent property, the ABSD rate increased from 15% to 30%.

This increase was also reflected for foreigners and entities, reaching 30% and 35% respectively; housing developers were charged 35% plus a further 5% non-remittable, for an aggregate of 40%.

Those were the rates set in the December 2021 round. Singapore raised ABSD again with effect from 27 April 2023: the rate for foreigners doubled to 60%, entities rose to 65% (housing developers remain at an aggregate 40%), and the rates for citizens and permanent residents buying a second or subsequent property were also increased. The table below shows the rates currently in force:

Additional Buyer’s Stamp Duty (ABSD) Rates

(Effective from 27 April 2023)

Conclusion

Overall, the government has tightened property-market measures at times over the years, and has eased them at other times; the specifics of each round are set out in the official announcements.

However, it is important to recognize that cooling measures only slow down rather than reverse property growth, as can be seen from the constantly rising property prices in Singapore, especially in a low-interest-rate environment.

Summary Table of Cooling Measures from 2009 to 2023

The above is a summary of the cooling measures covered in this article. If you are unsure how these measures affect you, or simply want to get an expert opinion on your property matters, feel free to contact us!

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