Cooling measures are not going to impact everyone in the same way



I wrote an article about the potential cooling measures which I think will be implemented in April this year. The article ages well. Most of what I thought could happen did happen- examples include the increase in ABSD rates, tightening of TDSR and increase in MOP period (while this only eventually applies to new prime location HDB flats). I was surprised that the SSD holding period didn't increase. Nonetheless, I'm still glad the majority of my predictions came true.


There are many articles talking about the new cooling measures in recent days and I believe most of us (who are savvy enough to be reading financial blogs) will have already known what the measures are. Hence, I'm not going to repeat what these measures are. Instead, I'll try to analyse and think about how these cooling measures are going to affect buyers or sellers like you and me.


As you would have expected, these cooling measures are quite targeted and specific to different segments of the market so not everyone is going to be impacted in the same way.



So here it goes.


Buyers for HDB BTO flats

You will probably be the least affected out of all. The measures have almost an neligible effect on you. The more possible effect I could think of is that the cooling measures result in lower pricing of resale HDB flat and hence resale HDB flats appeal more to you than BTO flats. Even then, I strongly doubt we are going to see any significant drop in the pricing of resale HDB flat.


Buyers/sellers for resale HDB flats

If you are waiting to see a big drop in resale HDB flats, I am afraid you might be disappointed. If we look back at the history of cooling measures in 2013 and 2018, you will notice that the cooling measures implemented in 2018 have very minimal impact on resale HDB prices. You can take a look for yourself here to see the impact of the previous cooling measures on resale HDB flats.


There's a good reason for it. In 2013, it was the first time that ABSD was introduced via the cooling measures. When ABSD was first introduced, it dampens the dreams of many HDB owners who want to own two properties- one HDB, one private condominium. With the introduction of ABSD in 2013, this option is no longer attractive. So what do some buyers do? They disposed of their HDB flats and went on to buy a private condominium instead of owning two. I personally think that this results in a temporary "over-supply" of resale HDB flats then and hence causes the resale HDB flat pricing to be depressed for a period of time. When the ABSD is introduced in 2018 again, it doesn't change much of the story as most owners might have already given up on the idea of owning one HBD and one private condominium and hence the pricing of resale HDB flats did not really change much. This is also why I do not think the increase of ABSD this time round will have any impact on this group of buyers either. Some might argue that tightening the TDSR and reduction of LTV limit for HDB loans will have some significant impact. I beg to differ. The tightening of TDSR is more impactful for buyers who are really stretching their dollars and most people generally do not need to stretch their dollars for resale HDB flats as they generally have lower quantum than private properties. Hence, I don't think TDSR is going to have much impact here. The reduction of LTV limit for HDB loans is probably also not going to dampen the resale market as most buyers will simply go for bank loans amid the low interest rate environment now. Overall, I think the resale HDB market will continue to remain buoyant in the next few years.


Similarly, I don't think there is much impact to the sellers due to the same reasons above.



Buyers for new private condominium launches

Unless you are stretching your dollars to buy a brand new private condominium, these cooling measures should be beneficial for you as you might start to notice some developers slashing their prices due to the cooling measures. Perfect Ten already dangles 5% discount amid the cooling measures. And I believe there will be more to come in the coming months. So the cooling measures are actually good news to you if you are already planning to buy a new private condominium for your own-stay. However, the story is probably different if you are a foreigner as the increase in ABSD rates for foreigners is quite significant (unless of course if you are a mega rich person, this increase in rate is probably not going to bother you).


Hence, the impact of the recent cooling measures is also probably going to affect the different segments of the new launches differently. The main market segment for the Core Central Region is mainly made up of foreigners and they will be the worst hit by this new round of cooling measures. If you are a Singaporean who's greatest wish in life is to own a brand new condominium in the Core Central Region, this is likely going to benefit you very nicely as the new launches in this region are most likely to slash their prices the most. For the other regions, I believe we might see some discounts too but probably not as much as the main buyers for the other regions are mainly Singaporeans. The reason why I think we will still see some discounts though is due to the fact that the tightening of TSDR is probably going to affect private home buyers due to the larger quantum and this is definitely going to turn some potential buyers away which will in turn result in sales moving more slowly for the developers. The developers might then be inclined to put in more discounts to attract buyers.


So if you are a buyer targeting new launches, you should wait and see.


Buyers/sellers for resale private condominium

I think most of the factors which are affecting the new launches (as stated above) are very applicable to the resale market as well. Resale condominiums in the Core Central Region are going to be the most affected. Overall, we will also see less demand due to the tightening of TSDR. As a potential buyer, it's probably a good time for you to start shopping around as prices for resale private condominiums are likely going to be suppressed for a period of time.


If you are a seller, you are probably going to take a longer while to find a buyer to meet your expected selling prices.


In the short to medium term, we are probably going to see very modest growth in the prices of private properties so it's important for anyone who's considering to buy a private property to really consider the possibility of self-stay rather than flipping them for investment gains as you might be disappointed. In the longer term, prices are still going to be on an upward trend and they will be well supported by the prices of the new launches in the future. While en-bloc fever might cool down in the coming months, developers will still need to buy land to fill up their land bank. With the huge increase in ABSD for developers from 25% to 35% and the increasing costs for manpower and raw material, there is no way the developers are going to drop the prices of future new launches by too much as they are already running on a razor thin margin. Hence, the prices of resale private condominiums in the surroundings are still well supported and likely to increase (just a matter if it matches your ideal expectations).



Overall

In the next few months, everyone is going to adopt a wait and see attitude so volume across both public and private housing is going to go down and prices are going to be suppressed. Even so, I expect the prices of public housing to continue its upward trend while the private housing market will be dampened for quite a while. And if that happens, we might see more cooling measures that's going to be focused on public housing.


Check out a free interactive map for private condominium prices here!


If you are looking to refinance your loan, do check out my article here on my experience with PropertyGuru Finance.


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