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Regulatory Measures

Since 2009, the Goverment has introduced a series of additional regulatory measures in an effort to cool and ensure a stable sustainable property market. Below is a closer look at some of these measures and its applicability and impact to the Executive Condominium market.

(Important disclaimer: While every reasonable care has been taken to prepare the contents of this summary, the author cannot be held responsbile for any inaccuracy. Please check with the appropriate parties for the latest update or interpretation of the measures before booking and/or contract execution)

 

1. For Buyer:

a. Buyer's Stamp Duty

The buyer is responsible to pay the Buyer's Stamp Duty (BSD) to Inland Revenue Authority of Singapore within 2 weeks upon signing the Sales and Purchase Agreement.

The BSD is based on the Purchase Price or Market Value, whichever is higher

First $180,000 – 1%
Next $180,000 – 2%
Thereafter         - 3%

If the purchase price is more than $360,000, the simplified mathematical formula is:

BSD = 3% of purchase price/market value minus $5,400

 

b. Additional Buyer's Stamp Duty

In addition to the buyer stamp duty, ABSD was first introduced on 8 December 2011 to curb foreigner and speculative demand for residential property. The ABSD is further revised on 12 Jan 2013, as follows:

For Executive Condomimium and new HDB flat which are subjected to HDB Regulations on Ownership, there is a special concession and rate. Reference  IRAS e-Tax guide Stamp Duty; ABSD Revised Edition (published 11 Jan 2013), para 10.1 & 10.2

* ABSD will be remitted for purchase of HDB flat or new EC by a SC household only (one where there is at least one Singaporean owner).
* ABSD of 5% will be payable for purchase of HDB flat by Singapore PR.
* Purchase of second residential property by a SC household may qualify for ABSD refund subject to ABSD being paid on the second residential property and the first property being sold within 6 months from date of TOP (for BUC project).

To put it simply, for the purchase of a new EC unit, SC/SC household do not need to pay ABSD. Similarly, a SC/SPR married couple also do not need to pay ABSD if they purchase an EC.

 

+ I am a SC married to a SPR. We jointly own a 3-room HDB flat. If we upgrade to a 5-room flat, do we need to pay ABSD?

 

+ I am a SC married to a SPR. Both of us do not own any property in Singapore. If we jointly purchase our first matrimonial home, do we need to pay ABSD?

 

 

More details on ABSD and its FAQs can be found in IRAS's e-Tax guide on ABSD

 

c. Resale Levy

There is no resale levy for 2nd timer applicants who applied for new EC from developer where the land was sold before 9 Dec 2013 or a HDB resale flat or private property.

The resale levy will be applicable for 2nd timer applicants who applied for new EC unit on EC land sales after 9 Dec 2013 (i.e from Westwood Avenue site).

The exact resale levy amount to be paid will be determined by HDB. It applies regardless of ownership type (joint-tenancy or tenancy-in-common) or shared interest in the flat.    The levy amount payable depends on when the resale application for the 1st subsidised flat was submitted. 

When and how the resale levy payment is made

 

2. For Buyer and Financial Institution/Bank:

Below are some key regulatory measures to loan financing.

a) Loan Tenure or Repayment Period

From 28 August 2013, the maximum repayment period has been shortened:

  • From 30 years to 25 years for new housing loan from HDB. (Not applicable for EC) 
  • From 35 years to 30 years for new housing loan and re-financing facilities from bank . 

 

b) Loan to Value (LTV) or Loan Ceiling and Minimum Cash Payment 
 
The maximum permissible Loan to Value limit was first reduced from 90% to 80% from 20 Feb 2010.  Since then, the LTV limit has been reduced a number of times.   The current LTV limit is as follows: 
 

LTV Limit

 
From 30 August 2010, the current minimum cash payment is as follows: 
 
Minimum Cash Payment 

 

So for a home owner buyer who has an existing housing loan seeking to buy another property, bank loan will be capped at 50% value and at least 25% of the down/upfront payment has to be in cash (even if buyer have more than 25% in CPF fund). 

However for the purchase of new EC, because existing HDB flat owners have to sell their current flat within 6 months from TOP, the borrower will not be subject to the lower LTV limit and higher minimum cash downpayment. Hence, for a HDB upgrader with an existing housing loan, the bank can still loan up to 80% of purchase price.   This is also another reason why purchasing an EC is a more attractive route to private property ownershipfor HDB upgraders.

 

c.  Total Debt Servicing Ratio (TDSR)

Effective from 29 June 2013, any loan extended should not exceed the a TDSR threshold of 60%. It means that the total debt of borrowers cannot be more than 60% of their household income. The key parameters used to compute the TDSR are:

  • Variable income such as commission and bonuses must be discounted by 30%. 
  • Besides mortgage repayments, car loans, credit card debts and personal loans are to be included as total debt.    
  • Applying a medium term interest rate of 3.5% and 4.5% for commercial loan. 

Under the TDSR framework,  for the purchase of new EC, existing mortgage repayment (if any) can be excluded from total debt.    It means that HDB upgraders with an existing housing loan will be given a higher loan limit for the purchase of EC versus private property.

 

d. Mortgage Servicing Ratio (MSR)

From 10 December 2013, the 30% cap on Mortage Servicing Ratio (MSR) for HDB housing loans granted by bank will also be extended to the purchase of EC.  

The Mortgage Servicing Ratio measures the % of income that goes to the monthly loan repayment.  As in TDSR framework, the same medium rate of 3.5% interest rate for residential loan and 4.5% for commercial loan is to be used in determining the loan amount.

Of the cooling measures introduced to-date, the 30% MSR ruling has the most significant impact on the EC market. To illustrate the point, reference the tabulation below, at the maximum qualifying household income of $12,000 /mth, the allowable bank loan has shrunk drastically from an average of $1.3 million (60% TDSR) to around $800,000 (30% MSR). Effectively, with a lower allowable loan quantum, purchasing an EC unit will be a challenge to many EC buyers as more cash and/or CPF will be needed after the 20% downpayment.   For HDB upgraders, 'selling existing flat before TOP' will be a more likely scenario to happen than 'selling after TOP' to meet the progressive payment call.

 

Allowable Bank Loan

 

Going forward, IMHO, new EC units/projects is likely to go the way as private condomimium, i.e more 2 bedrooms offering and shrinkage in 3/4/5 bedroom sizes to keep the pricing quantum align with allowable loan quantum.

 

3. For Seller: Seller Stamp Duty  (SSD) 

To curb 'flipping or sub-sale' activities, the Seller Stamp Duty (SSD) was imposed onto sellers who bought and sold the property within a short holding period.  From 13 January 2011, the current rates for residential property are as follows:

 

Seller Stamp Duty

As the Minimum Occupation Period for an EC is 5 years before it can be sold, this measure has no impact on EC.  

 

4. Finally, for the EC Developer as well 

From 12 January 2013,

·        The maximum strata title floor area of new EC will be limited to 160 square meters. 

·       Sales of new dual key EC units will be limited to multi-generational families only 

·       Developer of future EC sites will only be allowed to launch the EC units for sale 15 months from the date of award of the sites or after the completion of foundation works, whichever is earlier. 

·       Private enclosed space (PES) and private roof terraces will be treated as gross floor area (GFA) approved or allowed for the site. Such spaces will be counted as part of the “10% bonus” GFA allowed and subject to payment of development charges.

 

 

Related Articles

1. MAS's press release on 5 Oct 2012

2. Additional Measures to Ensure a Stable and Sustainable Property Market

3. MAS Introduces Debt Servicing Framework for Property Loans 

 

 

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