msmoneysense: Singapore Property Cooling Measures - Do you need a Mortgage Broker?

I was flipping through The Edge Singapore last weekend and chanced upon an article on mortgage brokers which I find rather interesting. The multiple property cooling measures imposed by the Singapore Government has made it very complex for the layman to understand and apply the rules in his personal circumstances and gave rise to a need for mortgage brokers to come in and offer advice.

The Total Debt Servicing Ratio (TDSR) loan framework was introduced in June last year and it came on top of seven earlier property cooling measures that included hikes in stamp duty, increased cash payment and reduced borrowing limit for those buying their second, third or subsequent properties. The TDSR has effectively changed the game as most property investors know it.

Some examples cited are:

A buyer in his 30s who is looking for a $2 million private condo and taking a 30-year loan at a loan-to-value ratio of $1.6 million. The monthly mortgage payments will be around $6,000. As the TDSR limit is 60% of gross monthly income, the homebuyer has to be earning a monthly salary of $10,000, assuming he has no other outstanding financial obligations, such as credit card debt or car loans. If, for example, he homebuyer is still financing a car at $3,000 a month, his gross monthly salary has to be at least $15,000 to qualify for the $6,000 monthly mortgage payment under TDSR.

If it is an investment property, and there is no other source of income except the rent, the property will need to generate a monthly rent of $14,500 for the bank to consider it "self-sustaining". This is because rental income is considered variable income and banks have to take a 30% haircut under TDSR regulation. Alternatively, the property investor would have to show that he has liquid assets in the form of cash or stocks of $1.6 million or pledge $480,000 to the bank for 4 years.

Based on the mortgage servicing ratio (MSR) limit of 30%, to afford a $900,000 HDB resale flat, a couple would need a combined household income of $15,000 to $18,000 a month. At this income level, the couple would be able to buy a $2 million private property.

So, for those looking to buy properties, you may want to familiarise yourselves with the new rules and regulations before taking the plunge.

Summary of the Singapore Property Cooling Measures

I have done a brief search online to present below the overview of the current regulations regarding residential property transactions in Singapore, result of the 8 rounds of cooling measures made by the authorities since 2009.

Sources:
http://www.ezproperty.sg/singapore-property-cooling-measures
http://www.srx.com.sg/cooling-measures
http://sbr.com.sg/residential-property/news/heres-quick-guide-already-infamous-property-cooling-measures
http://www.property-singapore.sg/singapore-property-measures.html

Total Debt Servicing Ratio (TDSR) framework - 28 June 2013 (revised 10 February 2014)

The Total Debt Servicing Ratio framework is the latest rule enforced by the Monetary Authority of Singapore (MAS). It is a set of rules that restrict financial institutions from lending to an individual if his outstanding debt repayments (any debt, not only linked to property) exceed 60% of his gross income (including the potential new loan). The interest rate used for calculation of the new loan is 3.5% or the actual interest rate, whichever is higher. Guarantors must not exceed the TDSR threshold as well.

Exemption

A borrower who bought a residential property before TDSR rules were introduced (i.e.29 June 2013) will be exempted from TDSR threshold as long as he occupies the residential property that is being refinanced.

Loan Tenure limit - 6 Oct 2012 (revised 10 February 2014)

Tenures of loans granted by financial institutions regulated by the MAS are limited to 35 years.

In case of co-borrowers, the income-weighted average age will be used, i.e. assuming Mr Tan (40) who earns $6,000 monthly and Mrs Tan (30) who earns $4,000 monthly apply for a loan, their income-weighted average age will be 36.

A concession will apply with regard to loan tenures, for residential properties purchased before the respective implementation dates for the loan tenure limits. In such cases, borrowers whose loan tenures for their owner-occupied residential properties exceed the current regulatory limits will be allowed to maintain the remaining tenures of their loans at the point of refinancing.

Loan-To-Value (LTV) limits - 12 January 2013

The LTV limit is the maximum percentage of the purchase price (price agreed upon between buyer and seller) or valuation price (given by the bank), whichever is lower, that can be borrowed from the bank.

80% if you do not have any other outstanding loan. If you are a foreigner without PR status, some banks might cap at 70% or even 60%;

50% if you have one outstanding loan;

40% if you have two or more outstanding loans or if you are buying under a company.

If your loan tenure is more than 30 years or the loan period would go beyond the retirement age of 65, these limits are lowered to:

60% if you do not have any other outstanding loan;

30% if you have one outstanding loan;

20% if you have two or more outstanding loans or if you are buying under a company.

The borrower must be the same person as the one purchasing the property.

Minimum Cash Down Payment

The remaining amount (from the LTV above) that cannot be borrowed from the bank has to be paid in cash or can come from a CPF ordinary account (mandatory saving account for Singapore citizens and Permanent Residents). However, there is a minimum percentage of the purchase price or valuation price, whichever is lower, that has to be paid in cash:

5% cash for a LTV of 80%;

10% cash for a LTV of 60%;

25% cash in all other cases.

Additional Buyer Stamp Duty (ABSD) - 12 January 2013

Anybody buying a residential property in Singapore is required to pay stamp duties equivalent to 3% of the purchase price or valuation price, whichever is higher. To cool the market, the government introduced an additional stamp duty (ABSD) which varies according to your immigration status:

If you are a Singapore citizen, the ABSD is 0%/7%/10% if you are buying your first/second/third or subsequent property respectively.

If you are a Singapore Permanent Resident, the ABSD is 5%/10% if you are buying your first/second or subsequent property respectively.

If you are a foreigner (living in Singapore or not) or buying under a company, the ABSD is 15% if you are buying your first or subsequent property.

Purchases by more than one individual will be subject to the highest applicable ABSD (some exemptions apply - see below).

Seller Stamp Duty (SSD)

To reign in speculation, sellers are required to pay a Seller Stamp Duty, which is a percentage of the selling price or valuation price, whichever is higher.

If you purchased your property between 30 August 2010 and 13 January 2011, the SSD rate is about 1%.

If you purchased your property on or after 14 January 2011, the SSD rates are the following:

If you sell less than 1 year after purchase: 16%;

If you sell between 1 year and 2 years after purchase: 12%;

If you sell between 2 and 3 years after purchase: 8%;

If you sell between 3 and 4 years after purchase: 4%.

Restrictions regarding Public Housing - 11 January 2013

Public Housing subsidized by the government (HDB flats) have additional restrictions:

The Mortgage Servicing Ratio (MSR), i.e. percentage of income that can pay for the loan, is capped at:

30% if the loan is granted by a private institution such as a bank

35% if the loan is granted by the HDB

The MSR will not apply to the refinancing of loans for HDB flats and Executive Condominiums (ECs) that are owner-occupied and were purchased before their respective MSR implementation dates.
Permanent Residents are not allowed to rent out their entire unit (which requires approval from the HDB);

Permanent Residents who own a HDB flat must sell their flat within 6 months of purchasing a private residential property in Singapore.

Exemptions and Beliefs

LTV

If you own a residential property in Singapore, you are not subject to these limits when you obtain a housing loan for the purchase of a property which is an Executive Condominium (EC) purchased directly from a property developer or a HDB flat (which requires you to dispose of your previous flat)

ABSD

Nationals from the USA, Switzerland, Norway, Iceland, and Liechtenstein are exempted from paying the ABSD for foreigners due to Free Trade Agreements (FTA). The ABSD rule applying to them is the same than Singapore citizens.

Married couples with at least 1 Singapore citizen will be exempted from paying the ABSD if:

None of them already owns a property;

They agree to dispose of their existing property within 6 months of the purchase of their new property (or the TOP if the new property is uncompleted).

For more details on the 8 rounds of property cooling measures, please refer to the MAS official press releases: