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New cooling measures in less than a year? What does this mean?

At the stroke of midnight on Friday, the government released another set of cooling measures. This new set of cooling measures comes less than a year since the implementation of the previous round of cooling measures in December. Back then, the cooling measures included an increase in ABSD rates, tightening of TDSR and an increase in MOP period (while this only eventually applied to new prime location HDB flats). I wrote about my thoughts about the cooling measures then and you can find the article here.

In the article, I explained that the cooling measures are not going to impact everyone the same way. An important point that I brought across in the article is the high possibility of new measures needed to focus specifically on public housing as I don't think the prices of public housing are going to be much affected based on the cooling measures in December.

True enough, we now see a new set of cooling measures focusing just on public housing.

If you are looking for a summary of these new cooling measures, here they are.

MSR (Residential) increased from 3.5% to 4%

TDSR (Residential) increased from 3.5% to 4%.

TDSR (Non residential) increased from 4.5% to 5%

HLE MSR increased from 2.6% to 3% (HDB loan remains at 2.6%)

LTV lowered from 85% to 80%

Private Property Owners have to wait for 15 months prior to being granted an Option to Purchase for a non-subsidised resale flat. This does not apply to seniors who are less than 55 years of age and looking at downgrading to 4-room flat or smaller.

Out of all these new cooling measures, the most prominent or unexpected one is the new ruling dictating that private property owners have to wait for 15 months prior to being granted an Option to Purchase for a non-subsidised resale flat. This is quite unprecedented and honestly beyond my predictions. The rest of the measures which revolve around tightening of the loan amounts are rather expected as they are the standard measures deployed when prices of housing go too high.

This unique measure probably comes from strong dataset collected that highlighted Private Property Owners might have been a prominent stakeholder in pushing the prices of the resale flats too high. We all saw the high numbers of million-dollar HDBs in the previous month. According to a report by OrangeTee & Tie Research & Analytics, HDB transactions that crossed SGD 1M are expected to see a new high this year. In fact, 231 HDB resale flats are sold for more than SGD 1M in just the first 8 months of the year. I'm sure that we can see a large number of the buyers of these resale flats coming from ex Private Property owners if we dig into the data.

So what will all these new measures bring?

Firstly, buying sentiment will be tampered and we will likely see a drop in the sales volume for HDB resale flats. The latest round of measures are quite heavily targeting public housing and we should see the results of these measures very soon so I don't expect to see so many million-dollar HDBs in the near future. In fact, the trend of ever increasing number of HDBs crossing SGD 1M mark should go down from here.

Secondly, there will be a slight direct impact on the sales of mass-market condos. Majority of the Private Property Owners who end up purchasing resale HDB flats are the same persona of those who are likely to purchase mass-market condos. With the resale HDB flats being a less likely option now, some of these owners might end up purchasing the mass-market condos. We must also remember that 31,000 of HDB units will reach MOP this year and this group of people are the potential condo upgraders who target the mass condos. New launch projects are few and far between this year which points to the fact that many will be looking for resale condos in the mass market segment (I wrote about this in a previous article here). This will likely drive up the pricing of these mass-market condos in the short-term so we might see condominiums in the OCR performing better in the quarters ahead.

Thirdly, rental prices are going to go up. There will still be buyers who are willing to wait for 15 months after disposing of their private properties to buy resale HDB flats. This means that they have to rent for the time being and that's going to provide an increased demand for rental. With most of the new launch projects facing delays due to COVID, the rental market is already seeing huge demand from owners who are waiting for their new launch projects to be completed. The rental prices are already high due to that. With increased demand now, we are going to see even higher rental prices.

We are now in a unique situation where there are record numbers of HDB units meeting MOP, record high interest rate in a decade, low number of new launches in these 1-2 years and high number of new launches projects delaying completion due to COVID. There are more factors favouring the rise of property pricing than against it so I'm inclined to think that property prices should still remain high till 2024. But that's probably going to be more relevant for private housing than public housing due to the latest round of cooling measures.

Rental wise, this is definitely a good period to be a landlord.

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