Potential property cooling measures in 2021?
The property market in Singapore is seriously heating up.
Contrary to the expectations last year, we are seeing growth in the residential prices in both the private and public market.
Just a few days ago, we had a news article which stated that the HDB resale prices have been up nine months in a row. The likely reasons behind it are the delays in BTO flats (construction works taking longer than usual due to COVID), rise in private home prices and also improving sentiments from the crowd on the country's recovery from the COVID crisis.
What's in the spotlight is also the rising cash over valuation situation. More and more home buyers are actually willing to pay more and more cash over valuation for their ideal HDB resale homes.
On the private home front, we have already seen Singapore private home prices rises for the fourth straight quarter. The latest quarterly increase in Q1 of 2.9% from the previous quarter is also the sharpest quarterly increase since the second quarter in 2018. Or you could say that it's also the largest quarterly increase since the latest round of cooling measures in July 2018.
All these statistics seem to point to the fact that another round of cooling measures seems to be on the cards.
Before we look into some of the potential cooling measures that might happened, let's take a look at the timeline of cooling measures in the past decade.
Here is an article from stackedhomes.com if you are interested to know what are the cooling measures which have happened since 2009.
In general, we have been seeing new cooling measures almost every 3 to 4 years at most since 2009. The latest round of cooling measures happens in July 2018 with a major increase in ABSD rates. Prior to that, the year where you have major changes will be 2013 where big changes are made to ABSD and LTV and a huge increase of minimum cash down payment required for second and subsequent housing loans from 10% to 25%.
And who can forget about the glory days of housing investments prior to 2010? Before 2010, you could actually own both HDB and private property within MOP. Back then, MOP was only three years instead of five years.
So for the sake of doing an intellectual exercise, let's dive into a few possible cooling measures that might happen. A huge disclaimer here: this is purely speculative stuff so do take them with a pinch of salt.
Increase in ABSD rates
One of the common cooling measures implemented of late is the increase of ABSD rates. So this is definitely one of the possible cooling measures which we might see again. However, I will think that the situation this time round can be a bit different.
Back in 2018, ABSD rates increased partly due to rising private property prices and falling HDB resale prices. This combination of events is definitely not a good thing as it means that average Singaporeans will find it harder and harder to do an upgrade, which might point towards certain wealth gaps eventually. That's definitely something that the government does not want. Hence, ABSD rates are increased to cool down the overheated private property market.
This time round, we are seeing rising prices in both private and public homes. So the issue of a price gap is not valid in today's context so I think a blanket increase in ABSD rates might not happen this time round.
Increase in MOP period for HDB
I personally think that we might be seeing some specific rules pertaining to HDB this time round if another round of cooling measures is to happen. Resale home prices are now 9.5% above what we are seeing in March last year. This is only 4.9% below the peak which happened in 2013. When the peak happened in 2013, we see a series of cooling measures that is very targeted towards HDB such as introduction of Mortgage Service Ratio for HDB loans and disallowing of PRs who own a HDB flat to sublet their whole flat.
Although we did not see an increase in MOP period then, I do think that can be a potential measure this time round.
The last increase in MOP period happened in 2010 so it has been a decade since any changes are made to it. Personally, I think this increases the chances of it happening this time round.
When the MOP period is increased, this will inevitably have a blanket effect on cooling the HDB market. There will be less buyers who can buy new properties as they have to fulfil a longer MOP. Similarly, there will also be less sellers as they do also have to fulfil a longer MOP. Hence, this might help in bringing the resale prices of HDB down.
Increase in SSD holding period
If the MOP period is to increase, it probably also makes sense to increase the SSD holding period to avoid a situation where buyers flock towards the private property market and further drive the prices of the private properties up while the resale prices of HDB starts coming down. Increasing the SSD holding period to reduce the supply of resale private properties sounds like a logical step if the MOP period is to increase.
Tightening the Total Debt Servicing Ratio (TDSR) and Mortgage Service Ratio (MSR) further
Tightening the TDSR has been a very useful cooling measure which greatly helps in moderating the property prices in 2013. So, we might see that happened again this time round as a blanket measure to curb the private property prices (both new launches and resales)
It's also likely the same will happen to MSR to improve the situation for the HDB and EC market.
I do think that another round of cooling measures seems likely this time round with very specific measures targeted towards HDB resale markets. Of course, no one can predict exactly what kind of cooling measures will be in place hence you should bear in mind what was discussed above are merely my own speculations.
If you are looking to buy or invest in a property in the near future, you might like to consider the impact of a potential cooling measure in your decision making process.
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