Fiona Chan
HDB flats in Queenstown, Singapore
Last week’s biggest news was the raft of cooling measures that the Government announced on Monday to dampen demand in the sizzling housing market.
The curbs are aimed mainly at deterring property speculators and investors – especially those who may be overstretching themselves financially – from dominating the market and pushing up home prices.
But the nature of some of the restrictions means that many genuine home buyers who are looking for a new place to live in may also find themselves affected by the new rules.
Whether you are a first-time buyer, property investor or aspiring upgrader, The Sunday Times walks you through what the latest changes might mean for you.
1. If you are a property investor or if you want to buy an additional property but have yet to pay off your existing mortgage.
You must now pay double the amount of cash upfront and probably take more from your Central Provident Fund (CPF) account as well. The maximum home loan you can obtain will also be smaller.
Previously, if you wanted to buy a home for $1 million – the rough cost of a three-bedroom suburban condo or a studio in the city – you would have to put a 20 per cent down payment, at least 5 per cent of which had to be in cash.
This works out to at least $50,000 in cash and $150,000 in cash or CPF. You could borrow the rest, 80 per cent of the property’s price.
These financing rules were the same whether you were buying the home for your own stay or for investment.
But under the new rules, if you have an outstanding home loan, you must put down 30 per cent upfront for any property you buy. The cash portion of the down payment has also doubled, to at least 10 per cent.
This means you now have to fork out a minimum of $100,000 in cash and $200,000 in cash or CPF for your down payment – an increase of $100,000 upfront.
The maximum loan you can take now is capped at 70 per cent of the property’s price, or $700,000.
2. If you haven’t paid off your mortgage and are planning to upgrade, downgrade or move house
The new regulations will mean a more cumbersome process that will require you to get your timing just right.
To avoid the stricter financing rules for your new home, you will have to sell your current house first and provide proof of the sale.
Selling a house usually takes three months to complete, but you can buy a new home during that time and obtain 80 per cent financing for it as long as you show the following documents:
For sellers of private property, the signed sale and purchase agreement for the house being sold, as well as a certificate from the Inland Revenue Authority of Singapore (Iras) stating that the buyer of the house has paid the stamp duty.
For sellers of HDB flats, an approval letter from the HDB within two weeks from the date of the first sales appointment. Then there’s the problem of timing. Unless you manage to buy your new home right after selling the old one, you will probably have to find somewhere to stay in between the transactions.
One way around this is to ask for a longer completion period for the home you are selling so that you can stay in it while the new one is being readied. Alternatively, you could speed up the completion period for the home you are buying so that you can move into it quickly.
3. If you want to buy a newly launched property
Unless you are a first-time buyer or you have paid off all your mortgages, buying an uncompleted property will now become trickier.
It will mean either selling your current home first – in which case you need to find somewhere to live for the three years or so that it takes to complete a new project – or forking out more money upfront under the tighter financing rules.
Effectively, this means new launches will be pretty much limited to first-time buyers; people who have paid off all their home loans; and those who can afford to put a 30 per cent down payment with 10 per cent in cash.
It is a sea change from the past when new property launches, especially of suburban condominiums, were the province of aspiring HDB upgraders such as Mr Christopher Low.
The 30-year-old civil servant, who lives in a five-room flat with his wife, daughter and mother, was planning to buy a bigger place with at least four bedrooms to accommodate the additional children he and his wife plan to have, as well as a maid to help take care of his mother.
But now, he will have to think twice. ‘It feels like I’m being penalised for wanting a bigger family because first I have to sell before I buy, and the timing will be very difficult,’ he said. ‘To me, it contradicts the very message of having more children that the Government has been preaching. At this rate, I’ll just stop at one.’
4. If you own an HDB flat and want to buy a private property for investment
You can continue to do so, but only after you have lived in your flat for five years.
Also, unless you have paid off the loan for your HDB flat, you will be subject to the new rules of a higher down payment and a smaller loan for your investment property.
Even if all this does not bother you, there is another issue to bear in mind before snapping up that investment condominium you have your eye on.
If you ever need to move from your current HDB flat to another one, the sale of your existing flat will leave you with just the condominium to your name, classifying you as a de facto private property owner.
This means that when you buy the next HDB flat to live in, you will need to dispose of your private home within six months. If not, HDB can compulsorily take back the flat.
5. If you own a property in another country
You will not be able to buy an HDB resale flat in Singapore, regardless of whether you plan to live in the flat or not.
If you buy a resale flat here, you will have to sell your overseas property within six months – even if it is an inherited property, has your family members living in it, or was bought for your retirement.
However, you can still buy a private property in Singapore under the old rules, provided you have no outstanding mortgage on any other property in Singapore.
That is, you will be required to put a down payment of only 20 per cent of the price of the property you want to buy, and you can take a loan from a bank of up to 80 per cent.
While this may cheer some, the new curb on resale flat ownership has angered some retirees and permanent residents (PRs), many of whom own homes overseas.
Mr Lee Chiu San, 64, wrote in a letter to The Straits Times forum that the rules seem to be sending the message that PRs and retirees should either ‘learn to lie or leave town’.
He said that many of his generation have acquired landed properties in Malaysia, Indonesia, Australia and America at prices less than the cost of a resale HDB flat.
However, with strong family ties and business connections here, they might also be looking at buying HDB flats for their frequent visits back.
‘(The new rules) will cause those retirees and permanent residents who are honest to make the hard decision as to whether or not to make Singapore their primary home,’ said Mr Lee, a retiree and a Singaporean.
6. If you are a first-time home buyer
The new rules do not affect you much in any direct way, but they now make it more important than ever that you right-size your property from the start.
Many first-time buyers are drawn to ‘mickey mouse’ private apartments that are just a few hundred square feet in size, because the price of these small units is more affordable.
But with the new rules, you must be confident that you can hold on to your home for at least three years – whether that means making sure it is big enough for your family or attractive enough to draw a tenant.
This is essential because if you resell a property within three years of buying it, you will have to pay a penalty in the form of a sellers’ stamp duty. Previously, this was applicable only to those who resold their home within a year of buying it.
For HDB flat buyers, you must be prepared to live in your home for at least five years now, even if it is a resale flat that you bought at market price without a concessionary loan from HDB.
This ‘minimum occupation period’ has always been five years for brand-new HDB flats. But for non-subsidised flats, it has been raised twice in the last six months: from one year to three years in March, and then to five years now.
7. If you are looking for a home to buy, anticipating that property prices will fall after the measures
What you will want to know is: Which segments of the market are likely to crumble the most and the fastest?
Property consultants such as DTZ’s head of South-east Asia research, Ms Chua Chor Hoon, say HDB resale flats and private mass market condominiums are expected to take the biggest hit as would-be buyers of these homes will be the ones most affected by the new rules.
This is welcome news to hopeful homebuyers such as Mrs Michelle Cheong, 26, and her husband, who have been living with his parents while balloting unsuccessfully for a new flat.
The couple’s income recently breached $8,000 a month after Mr Cheong changed jobs, and they decided to buy a resale flat to move into immediately because they have a baby on the way.
‘We were quite happy to hear about the changes, because we’ve been debating what to do for some time now, with HDB flat prices so high and still rising,’ said Mrs Cheong, a teacher.
‘We hope the measures will cool the resale market so flats will become more affordable.’
8. If your household income falls between $8,000 and $10,000 a month
You now have more options for your first home. Previously, buyers falling in this ‘sandwiched class’ category could purchase only private properties or executive condominiums (ECs). They could not buy any other HDB flats, for which the income ceiling is $8,000 a month.
Now, their choices have been extended to flats under the Design, Build and Sell Scheme (DBSS), which are premium HDB flats built by private developers and have better finishes and design.
This will effectively double their chances to secure an HDB flat as there are 2,445 EC units and 2,280 DBSS flats in the pipeline.
DBSS projects are usually located in sought-after established residential areas – such as The Peak at Toa Payoh and Natura Loft in Bishan – and are priced at about $500,000 for a typical four-room flat.
9. If you agreed to sell or buy a property just before the rules were announced on Monday
Say you bought your dream home just the previous week, with no inkling that these measures would be introduced almost immediately after. Will you be affected?
The good news is that the tighter financing rules for those with existing mortgages will not apply to private property buyers who were granted their option to purchase before Monday, even if the option has not yet been exercised.
However, for private home sellers, what matters is the exercise date. They will not be able to escape the sellers’ stamp duty for selling their home less than three years after buying it, if the option to purchase had been granted before Monday but not yet exercised.
For buyers of HDB resale flats, they will be subject to the new rules if HDB received their applications on or after Monday, regardless of whether their options to purchase were already granted and exercised well before that. However, HDB has said that it will consider appeals on a case-by-case basis if the option to purchase had been granted or exercised before Monday but the resale application had not been submitted by then.
It is commonly said that in buying property, the only three things that matter are location, location and location. But as the latest rules clearly show, the most important factor of all may be timing.
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This article was first published by Sunday Times on 5 September 2010. Photo courtesy of Wikimedia Commons.
