As Singaporeans, we know that price is one thing that defies the law of gravity.
As a former journalist, I can understand how readers can misconstrue what is reported. Does a drop in sales percentage equate to a drop in price? Not necessarily. Relationship between the two is converse. Thus low sales means either price is holding or is still high. Hence, the government has introduced cooling measures such as Additional Buyers' Stamp Duty, Total Debt Servicing Ratio and the Mortgage Servicing Ratio to induce an ideal balance between supply and demand and hence allow prices to adjust favourably. The aim is never to affect the value of properties, but only to compress the upward spiralling of property prices.
How does the cooling measures work to manage the property market?
The TDSR is imposed by Monetary Authority of Singapore (MAS) and is pegged at 60% of income. For example, should you be drawing a monthly salary of $10,000, you are only allowed to use up to $6, 000 for the servicing of your monthly mortgage instalments. However, any other loans on hand -- credit card, current mortgage, personal loans, etc... -- will impact on the mortgage quantum that the bank will extend to you.
MSR is used for HDB and Executive Condo purchases. Buyers are allowed to mobilise only 30% of their household income. So for a $10,000 monthly household income, one is only allowed to use $3,000 for monthly mortgage servicing.
News report have shown that Singaporeans are one of the most affluent people in the world and thus the only way to curtail property purchase is to manage their loan ability. So far, Minister for National Development, Khaw Boon Wan has reported the success of the cooling measures in slowing down the market. The catchphrase is "slow down" and not to reduce prices or depress the property market.
For more information on TDSR and MSR, please click onto the links below.
http://www.mas.gov.sg/news-and-publications/press-releases/2013/mas-introduces-debt-servicing-framework-for-property-loans.aspx
http://app.mnd.gov.sg/Newsroom/NewsPage.aspx?ID=5023&category=Press+Release&year=2013&RA1&RA2&RA3
*This article is a basic overview of the current property market. For more information please refer to IRAS and HDB websites.
What is this ABSD?
The above stands for Additional Buyers' Stamp Duty and is a government tax imposed on property purchases. One thing to bear in mind about this new government measures is that it is meant to stablise and slow the market down but not to force prices to drop. Indeed, newspaper reports have been reporting that sales has been slow, which has been misconstrued as property prices taking a tumble.
The most recent adjustment to the ABSD was announced in January 2013. Under this new regulation, foreigners have to pay 15% ABSD on any property purchase on top of the 3% stamp duty. PR's will have to pay 5% ABSD for the first property purchase and 10% for subsequent property purchase. Citizens will pay no ABSD for first property purchase, 7% for the purchase of the second property and 10% for subsequent purchases.
While this was received with some trepidation, it it did not slow the property market. Smart as this measure was, the buyers found a brilliant way to circumvent this ABSD.
Buying under another person's name is one way of circumventing the ABSD. New launches saw buyers buying units for their kids even though the children had no consistent income. However, the government got wind of this and nipped it in the bud by insisting that only owners of the new property can apply for mortgage. This preventive measure is ensure that citizens do not over extend themselves financially.
Decoupling is another common practise to give ABSD the slip. Many homeowners quickly ran to their lawyers' offices and got their names or the names of their spouse out of the current homes in order to allow them to buy another property without incurring the ABSD. However, when decoupling is applied, the transfer is regarded as a sale and the exiting owner must pay up the CPF with accrued interest to CPF and 'pay' the half share to the other owner (spouse). Stamp duty of 3% is also incurred by the remaining owner for the 'purchase' of the half share. Furthermore, depending on when the existing property is bought, the exiting spouse/owner may incur the Sellers' Stamp Duty (SSD). (SSD is charged at 16% of purchase price for 1st year, 12% for 2nd year, 8% for 3rd year, 4% for the 4th year, and 0% after that.)
Will this monster ABSD ever be lifted? According to the government, some of the measure may be lifted as and when is required to stimulate the industry, but for now, the property market is remaining rather buoyant and the population plan of 6 million people by 2030 is not helping to dampen hopeful spirits.
*This article is meant to give a basic overview of the current property market. For more information, please refer to lawyers for decoupling procedures and documentation. To understand ABSD better, please check out the IRAS website.
