In December 2021, the government announced new measures to cool the property market. The following measures took effect on 16 December 2021:
- Raising the Additional Buyer’s Stamp Duty (ABSD) rates
- Tightening the Total Debt Servicing Ratio (TDSR) threshold from 60% to 55%
- Lowering the Loan-to-Value (LTV) limit for HDB loans from 90% to 85%
ABSD was introduced in 2011, adjusted in 2018, before the current round of measures. Let’s take a look at the 2021 increase in ABSD rates:
- For Singapore citizens, the ABSD rate has been raised from 12% to 17% for the purchase of a second residential property and from 15% to 25% for the third and subsequent properties. The ABSD rate remains at 0% for first residential property purchases.
- For permanent residents, the ABSD rate was raised from 15% to 25% for the purchase of the second residential property and from 15% to 30% for the third residential property. The ABSD rate remains at 5% for first residential property purchases.
- For foreigners, the ABSD rate was raised from 20% to 30% for all residential property purchases.
You can read the full details of the measures here.
Why are these cooling measures implemented?
The measures are aimed at cooling the buoyant private residential and HDB resale markets and taming any potential exuberance in the market. This is to prevent prices from running ahead too quickly which in turn increases the risk of a large correction.
The measures will also encourage greater prudence amongst borrowers so that they won’t be caught out by possible higher interest rates down the road. The measures are also aimed at encouraging people to buy property owner occupation rather than for investment or speculation.
What does this mean for you?
The tighter measures could moderate the strong growth momentum in prices. If you’re a first-time buyer of a private property, the rise in ABSD won’t affect you as rates remain the same for first residential property purchases for Singapore citizens and PRs.
If you want to avoid paying ABSD on residential property, there are still other options to consider such as commercial or industrial property investment.
According to reports, the rental market is likely to remain strong as Singapore reopens it borders. With more expatriates, workers and students likely to enter the country, this will keep demand for rental units strong as this group of people require housing.
This is good news for those of you who already have an existing residential property investment for rental. Alternatively, you can also look into investing in co-living spaces to take advantage of strong rental demand.
As always, you’ll need to consider carefully your own personal financial goals and financial background before you make any investing decisions.