More Reading Here:
Market Cooling Measures Adopted by Singapore
Singapore's Monetary Authority has enforced new rules under a framework to restrict lending by banks and other financial institutions. Individual borrowers who have outstanding debt repayments greater than 60% of gross income, regardless of whether that debt is associated with property or not, are treated within certain constraints by these lending institutions. Interest rates used to calculate the potential loan for individual borrowers is the highest of either 3.5% or the actual interest rate calculated on the value of the property to be purchased. Guarantors are also required to be within the TDSR threshold to enable the loan to be successfully processed.
Banks are also required to lend at the lower of a Loan – to – Value (LTV) limit of either the maximum percentage of the property's purchase price or the price determined by the property's value as established by the bank. Depending on the circumstances of the borrower the LTV may be set out as follows:
• 80% if there are no other loans owing. For foreigners who are not Permanent Residents of Singapore some banks may place a 70% or 60% cap on the LTV.
• 50% if there is at least one loan owing
• 40% if there are two or more loans owing or if the borrower is purchasing through a company.
Lower LTV limits are however applied for loan tenures that would exceed 30 years or for loans with duration beyond the age of 65. These lower limits are:
• 60% if there are no other loans owing;
• 30% if at least one loan is owing;
• 20% if two or more loans are owing or if the property will be purchased through a company.
Owners of residential properties in Singapore are not subjected to LTV limits in obtaining housing loans for buying Executive Condominiums directly from a property developer of a HDB flats.
The person applying for the loan should also be the purchaser of the property for which the loan is being made. According to MAS regulations the loan tenure limit to be granted by financial institutions cannot exceed 35 years.
Minimum Deposit by the Borrower
The amount that is not financed by the bank or financial institution must be paid by the borrower from his own resources. This amount can either be an out of pocket payment or a withdrawal from the CPF ordinary account (the savings account mandated for Singaporeans and Permanent Residents). The borrower's deposit cannot be below the lower of the stated minimum percentage of either the purchase price or the valuation price.
• 5% deposit for a loan to value of 80%
• 10% deposit for a loan to value of 60%
• 25% deposit for a loan to value below 60%.
Additional Buyer Stamp Duty (ABSD)
A Stamp Duty is required for every purchase of residential property in Singapore. This is a tax equivalent to approximately 3% of the higher value of either the purchase price or the valuation price. This tax was introduced to reduce the volatility of the real estate market in Singapore. The Additional Buyer Stamp Duty is set according to the borrower's immigration status.
• Singaporeans applying for a first, second or third (or subsequent) loans will pay an ABSD of 0%, 7%, 10% respectively.
• Permanent Residents will pay an ABSD of 5% for a first purchase or 10% for a second or subsequent property purchase.
• Foreigners, whether staying in Singapore or not, and individuals purchasing property through a company will pay a 15% ABSD regardless of whether they are purchasing their first or subsequent property.
When more than one person joins together to purchase a property the highest ABSD (with some exemptions) will apply. Residents of Norway, USA, Iceland, Switzerland, and Liechtenstein are not required to pay the same ABSD applicable to foreigners but instead will pay the same rate as Singapore citizens. Married couples, of which one partner must be a Singaporean citizen, are also exempted from paying the ABSD if they are first time property owners, or if they agree to sell their existing property within 6 months of purchasing a new property.
Seller Stamp Duty (SSD)
To control speculation in the real estate market sellers of property are also required to pay a Seller's Stamp Duty. This tamp Duty is the higher value of either the percentage of the selling price or the valuation price. For purchasers who have bought property after August 30, 2010 but prior to January 13, 2011 the applicable SSD was approximately 1%.
Properties bought after January 14, 2011 would attract Seller Stamp Duties if they are sold within 4 years after purchase as follows:
• 16% if sold within less than one year
• 12% if sold between one year and 2 years
• 8% if sold between 2 and 3 years
• 4% if sold between 3 and 4 years
Restrictions on Public Housing
Extra restrictions have been placed on transactions involving houses that were provided by the Singaporean government (namely the HDB flats).
The proportion of the income that can be used to pay for the mortgage loan, termed the Mortgage Servicing Ratio (MSR) is set at 30% for loans granted by private banks or financial institutions and 35% for loans granted by the HDB.
Permanent Residents are not permitted to offer their entire housing unit for rent. Prior approval from the HDB is required. Owners of HDB flats who are permanent Residents of Singapore are also allowed 6 months to dispose of their flats if they are going to buy private residential properties.
Summary of Key Market Cooling Measures
• Loan – to- Value Limit is 50% for second home loans (30% if loan tenure is longer than 30 years or loan is past age 65). For third home loan the LTV is 40% (20% if tenure is longer than 30 years or loan duration is past age 65) and 20% for companies (since January 2013)
• Additional Buyers Stamp Duty (ABSD): foreigners and companies +15%, Permanent Residents +5% for first property and +10% for second property, Singaporeans +7% for second property and +10% for third property
• Seller's Stamp Duty (SSD) on private residential property sold within 4 years of purchase (with sliding rates of 16%, 12%, 8% and 4%)
• Minimum occupation period of non-subsidized HDB flats is 5 years (reselling and renting are not allowed). Permanent Residents with HDB flats must sell the unit within 6 months of buying a private property.
• Minimum cash deposit for first time property loans is 5% (10% if tenure is longer than 30 years or the loan duration is past age 65), for second and subsequent home loans the minimum cash payment increases to 25%.
• Executive condominium construction and sale restrictions and seller's stamp duty on industrial properties.
• All borrowers must also be mortgagors and no guarantors are allowed since January 2013.
• Debt Servicing Ratio (TDSR) is capped at 60% for property loans.
This information serves to increase understanding about the market cooling measures that have been implemented by the Monetary Authority of Singapore since 2009 to dampen the effect of speculation that was a feature of the booming real estate market in that country.