The last quarter of 2022 started with a bang when a brand new set of property cooling measures was announced on 29 September.
This move, which comes on the back of rising interest rates, is no surprise to seasoned analysts. After all, million-dollar HDB flats have been making headlines for a while now. While the new rules have taken some by rude shock, they’re a necessary evil for keeping public housing accessible.
With the new measures, it’s now tougher to:
a) Borrow from private financial institutions
The medium-term interest rate floor in private financial institutions, which affects total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR), has increased from 3.5% to 4% per annum.
Now, it’s tougher to pass the bank’s “test” of credibility. Since your ability to repay loans is undermined, you can’t borrow as much money as before. (As for actual interest rates charged for mortgages, the ball remains in the court of private financial institutions).
b) Borrow from HDB
The loan-to-value (LTV) limit for HDB loans has been lowered from 85% to 80%. This reduces the amount you can borrow to finance your flat and increases the sum to be paid in cash or CPF.
c) Ditch private property for an HDB flat
Previously, private homeowners can apply for an HDB resale flat 6 months after they’ve sold their condominium or landed home. Now, they have to wait 15 months. In other words, it now takes 2.5 times longer to downgrade.
For first-time buyers
As first-time buyers of BTO and resale flats are eligible for grants, the authorities have said they wouldn’t be impacted significantly. Nevertheless, there are a few pointers this group should note.
a) Recalibrate your priorities
Being clever about debt has never been more pertinent now that buyers across the board can borrow less money. As a result, “Wants” like car ownership may have to take a backseat for “needs” like housing.
b) Rethink that 4-room HDB flat
As if 4-room flats aren’t already popular, the segment will be flooded further by cash-rich downgraders who aren’t about to rent for 15 months, and who can transact more quickly than first-time buyers. The path to a 3-room flat, on the other hand, will be relatively clear.
c) Consider alternatives to ECs
In that same vein, cash-rich downgraders may also flock to 3 to 4-room resale ECand compound its recent boom. Buying a private property for your first home? You may want to look into 99-year leaseholds or alternatives like walk-ups and cluster homes.
That said, if you see your first residential home as an investment property, looking beyond the 5-year MOP and shelling out good money for a 4-room flat or resale EC could be justified. Measures may evolve, but you would still have bagged a low-hanging fruit.
For downgraders
a) Don’t overestimate the rental market
Given the 15-month wait-out, it seems logical that private homeowners who had sold their properties prior to the announcement will jack up rental prices. But according to news reports, the authorities have received only around 100 appeals. Chances are, there are fewer “stranded” folks than we think, and we’d be remiss to expect a sudden boom in the rental market.
b) Lease back from new buyers
If you’re bearing the brunt of the 15-month wait-out, or should you wish to downgrade nevertheless, negotiate for deals with a onger time to completion or lease your property back from a new buyer. You get to stay there for a longer time, and its future owner is protected from rising interest rates. It’s a win-win situation. Need more guidance in navigating the current property market? Reach out to me (Harvey Chia) at 9199 9141.
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