With a little more than a month post-December 16, 2021 announcement of the new property cooling measures, most analysts are predicting that there could be a lull in the coming months in terms of the overall property transactions activities as both buyers and sellers move cautiously when it comes to taking on big ticket purchases like property buying or selling.
But a question still remains on whether adopting a wait and see approach is a sensible and more rational move, or should one take this opportunity to actively search for value-added and down beaten properties, which in the long-run, if you believe in the strong fundamentals of what Singapore has, as one of the major financial hubs globally, the property seeker will reap the rewards as the country progresses on in the long-run.
So, in this article, we hope to explore the various options for the first-time homebuyers as this cohort of would-be property owners are relatively shielded from the impacts of the Additional Buyer Stamp Duty (ABSD) increases, and they start out fresh on a clean slate with better opportunities to capture the long-term appreciation values of the local properties.
First-timers, what should I look out for
For the first-timers seeking for their first home, they are considered quite “lucky” in a way that they are not impacted greatly as far as the ABSD increases are concerned, as this additional tax is exempted for first-time Singaporean home seekers looking for their first-homes, while for the Singapore Permanent Residents (SPRs), the ABSD rate remains unchanged at 5 per cent.
However, when it comes to financing, the two main constraints one might think of are the decline of the Total Debt Servicing Ratio (TDSR) from 60 per cent previously to post-cooling measures of 55 per cent. This could limit some of the borrowing capacities for home seekers. In addition, if one is seeking for resale or new Built-to-Order (BTO) HDB flats, the loan-to-value (LTV) for HDB loans drops from 90 per cent previously to 85 per cent post-cooling measures, but for loans procured from banks continued to remain unchanged at 75 per cent.
While the LTV ratios for HDB flats fell by 5 percentage points, we do not think that the HDB home seekers will seek to maximise their borrowing needs as there has been an increasing amount of public education on the use of the Central Provident Fund (CPF) funds in purchasing new homes, including HDB flats as the opportunity costs of borrowing on a 25-year HDB loan duration outweighs the greater need to save the excess funds, if any, and focus on regular contributions to the three CPF accounts (Ordinary, Special and Medisave Accounts). Moreover, the interest differentials of the three CPF accounts greatly benefit the CPF members more than any other savings or investment products out there in this current market environment.
Look for rental market opportunities
If you are still unsure about your upcoming housing needs, or are waiting for your uncompleted HDB flats or private condominiums, look no further than the rental markets.
And why rentals and not other housing alternatives such as co-living, or living with parents, or siblings. Well! With almost of the 50 per cent of the work force still require to work from home (WFH), there is an increasing need for greater amount of space. Moreover, given the size and comfort of most typical Singapore homes which are quite small, if you choose to continue living with your parents, siblings, or even co-living alternatives, the sense of privacy could be nowhere as close as living by yourself, or to share a private space with someone you are familiar with, and preferably have a sense of responsibility in terms of settlement of rental payments and utility payments.
Well! Good news. As of 4Q21, according to the latest research done by PropNex and with reference to the rental statistics the Urban Redevelopment Authority (URA), leasing activity as of 4Q21 was described by the PropNex analysts as “fairly muted” owing to the slower market activity towards the end of the year. This resulted in having 23,489 rental contracts being inked, with the rental value of leasing contracts amounting to $94 million.
While the latest HDB rental statistics are still not yet finalised, based on our calculations and analysis, as of 3Q21, there were a total of 10,417 HDB rental contracts being inked, and this is an increase of 27.1 per cent as compared to the previous year’s quarter in 3Q20.
Also, the HDB rental statistics do not include the average monthly rental prices, but according to 99.co and SRX.com, as of December 2021, HDB rents increased by 1.4 per cent month-on-month (MoM) as compared to November 2021 with mature and non-mature estates rents increasing by 0.1 per cent and 2.8 per cent respectively.
Do note that in order to rent out an entire HDB flat, one must generally have fulfilled the required 5-year Minimum Occupation Period (MOP) before approval is granted by the HDB.
In general, on the private home leasing front, PropNex Research expects the rental market to grow further in 2022 with more demand generated from foreigners who may choose to lease rather than buy a property due to the higher ABSD rates which are currently set at 30 per cent from 20 per cent earlier.
However, this 30 per cent ABSD charge is exempted for first-time homebuyers coming from the countries of United States, Switzerland, Norway, Iceland, and Liechtenstein. They are being accorded the same stamp duty treatment as Singapore Citizens due to their respective free trade agreements (FTAs) signed with Singapore. These cohort of key foreign buyers are currently the target market for most real estate professionals seeking to market the private non-landed properties.
With that, for those seeking to rent, there are still pockets of opportunities to look for good locations for rentals, but at a minimal expense. However, this could change if more Vaccinated Travel Lanes (VTLs) are opened, and foreign professionals start coming back. As it is, there have been reports that might suggest that Bank of America (BoA), one of US top global banks, is currently seeking to move its Hong Kong staff to Singapore. This move, if confirmed, could result in greater interest and need for permanent accommodation in this country.
If really really want to own private, what are the options
Well! If you are really looking to have a head start in the private housing market, but do not want to necessarily spent a lot in terms of the various taxes, capital outlays, financing etc., then the new executive condominium (EC) market is something you might consider as ABSD is generally exempted for home seekers, regardless of how many times one has bought into local properties.
Moreover, owners of ECs need to adhere to the 5-year MOP period which binds the EC owners to only be able to sell the unit to Singaporeans, and PRs after the initial 5 years. But, by year 11, these home owners are able to sell the units to all foreigners, locals, and PRs.
However, in view of the benefits and costs of owning an EC, the only disadvantage might think off will be be you might need to wait a little bit longer for an EC development to be launched in the market. Reason being, based on the latest 4Q and FY 2021 URA housing figures that have been finalised, The Business Times cited in a January 29, 2022 article that there have been no EC launches being made during 4Q21, and this compares to the previous quarter with 496 units that were launched, and 717 units were sold.
Going forward, with relatively few ECs to be launched for sale, and the 15-month time lag between a successful bid to the eventual launch, many expect that there could be more bidders in the coming years due to the slower start to the Vaccinated Travel Lane (VTL) scheme, and as the government has start to ease further on the border restrictions, and increase the foreign construction manpower availability in order to ensure timely completions.
We have outlined some benefits of a first-time property seekers and there are more options available given that they are not part of the cohort that are being the targeted for anti-speculation measures.
Next, we have also provided an overview of the rental market which could be good options to think of for first-time homebuyer seeking to take a pause and evaluate at more available options, or for some homeowners wanting to shield from further ABSD hikes given that they have just sold their private developments and would like to right size their homes.
Finally, we have also introduced another form of housing alternative one might look for and that is the executive condominium (EC) market. However, while income criteria of S$16,000 per month for households provides a wider room for many to upgrade to private, the limitations will be the amount of EC supply available, and the longer than expected wait before one can actually see the next EC launch.