Property curbs make leap harder for first-time buyers, upgraders

Property curbs make leap harder for first-time buyers, upgraders

Rachel Au-Yong

JUL 12, 2018


The latest round of property curbs has come as a surprise to buyers as well as developers, who have greeted the new rules with unhappiness.

Developers, in particular, have been hit with a higher Additional Buyer's Stamp Duty (ABSD) - 25 per cent instead of 15 per cent - and an extra ABSD of 5 per cent that cannot be waived, even if they sell all their units in time.

But how will the new measures affect the man in the street looking for a roof over his head or the family that aspires to upgrade?

LOWER EXPECTATIONS FOR FIRST-TIME BUYERS

The tighter loan limits mean that even first-time buyers now have to fork out 25 per cent of their home prices in cash, up 5 percentage points.

This is the first time that the loan-to-value (LTV) ratio on loans for first properties has been raised since it was implemented in 1996, and observers say this move is likely to be here for the long haul to encourage financial prudence.

At 75 per cent LTV, Singapore now inches closer to places with hot property markets like Hong Kong, where regulations restrict traditional bank mortgages on properties costing less than HK$10 million (S$1.74 million) to 60 per cent of their value.

Last week's change affects even those buying Housing Board flats and who wish to take advantage of the lower interest rates currently offered by banks - as low as 1.6 per cent - as compared with the 2.6 per cent currently offered by HDB.

But this means that a young couple buying a four-room resale flat in Ang Mo Kio at the median price of $452,000 will have to cough up $113,000 in cash and Central Provident Fund savings - $22,600 more than before the announcement.

This is no small sum, especially for cash-strapped couples who want to tie the knot soon but are new to the workforce.

HDB flat buyers have the option of taking up an HDB loan - which lets them borrow up to 90 per cent of a home's value or price - but it means higher interest rates, and other buyers will have to redo their sums.

Some hope the higher cash bar will lower prices, but analysts say sellers will not be quick to do this or to do it by much, and this will lead to an impasse for several months.

In fact, history shows that new private property prices fell only slightly in the immediate aftermath of ABSD measures implemented in December 2011 and January 2013.

They recovered to their original levels about five months later, according to research by OrangeTee & Tie.

But with the cooling measures here to stay, prospective first-time condominium buyers may be diverted towards the cheaper HDB resale market, said Cushman & Wakefield senior director and head of research Christine Li.

This is because a couple looking to move in quickly are unlikely to consider a new launch, which would only be completed in a few years.

They may also have to choose a lower-cost option, she said.

One such example is client acquisition manager Christine Chua, 29, who had her eyes set on a two-room unit at Terrasse, a condo in Hougang.

She had hoped the measures would give her a bargaining chip and thus lower prices, but realised over the weekend that sellers would not be giving her such discounts soon.

Instead, she has instructed her property agent to shortlist a few resale HDB flats in Queenstown.

"Given my budget, perhaps it's better to buy a resale HDB flat and invest the rest," she said.

DEFER UPGRADING PLANS

Those looking to upgrade have also been hit. Buying a condo has been a constant Singaporean aspiration, and today's slate of one million HDB flats forms about 73 per cent of total housing stock, down from 78 per cent in 2006 and 85 per cent in 1996.

But HDB dwellers - or even mass-market condo residents who hope to make the jump to a more upscale one - will need to pay the new ABSD of 12 per cent upfront when they make the new purchase.

They will then get six months to sell their existing unit before they can apply for a refund and get this ABSD amount back.

It is not a trifling sum. For a three-bedroom condo unit in the suburbs that costs $1.3 million, that works out to an extra $65,000 upgraders would have to pay first.

"That's about the price of a resale Japanese car upfront," said ZACD Group executive director Nicholas Mak. "Not many people have this kind of cash lying under their mattresses."

This does not take into account the buyer's stamp duty, which was raised in February to 4 per cent on the value of a home exceeding $1 million, up from 3 per cent.

All these cooling measures add up to tens of thousands of dollars for upgraders, said VestAsia Group chairman Steven Choo.

Difficulties in upgrading will also be compounded by smaller sales proceeds from HDB flats, said OrangeTee & Tie research and consultancy head Christine Sun.

According to flash estimates last week, HDB resale prices went sideways with a 0.1 per cent increase - a minor uptick, but the first after six straight quarters of decline. This is in contrast to private residential prices, which have increased by 9.1 per cent since last June, after 15 consecutive quarters of decline.

Any upticks in the HDB resale market are likely to be gentle, said JLL national research director Ong Teck Hui. They are likely to be outstripped by price increases for condos, even if these moderate.

This means the gap between what you get for your HDB flat and what you pay for the private condo is likely to widen, making the upgrading leap wider, he said.

But that does not mean upgrading has become a pipe dream just yet.

"HDB households continue to account for a large proportion of the buyers in suburban projects," he said, noting that while in the last 10 years private home prices have risen 17.4 per cent, household median incomes have risen more than 68 per cent.

"HDB household incomes would also have risen favourably relative to private home prices during that period," he said.

SO WHAT'S NEXT?

Even as developers' stocks took a tumble over the week, analysts prefer a wait-and-see approach on the full impact of the measures.

International Property Advisor chief executive Ku Swee Yong thinks that high-end residences will be hardest hit.

"We're unlikely to see the same pace of sales in District 9 that we have seen in New Futura, The Nassim or Gramercy Park in the next two years," he said.

The 124-unit New Futura in Leonie Hill near Orchard Road, for example, sold 18 of the 25 units put out in its first phase in January.

They went for an average of $3,200 per sq ft. But two-thirds of these were sold to permanent residents and foreigners. Among Singaporean buyers, there is a high chance that most, if not all, are investors, he said.

The higher ABSD, which applies to foreigners and investors looking for another property, is likely to be most keenly felt in such condos.

But neither are genuine home buyers likely to find great bargains at new launches for mass-market condos. As Cushman & Wakefield's Ms Li put it: "We do not expect a fire sale in the market."

She noted that most upcoming new launches this year were from collective sale land acquired in the last two years.

"As such, developers still have ample time - at least three more years - to move units and are expected to hold on to their pricing levels, barring unexpected economic circumstances," she said.

But the private resale market may see a resurgence, with more affordable homes on offer, especially in the suburban mass market, said JLL's Mr Ong.

Last year, resale transactions made up 58 per cent of total private market sales.

This proportion has risen to 67 per cent so far this year and is likely to climb further, thanks to the slow launches of new projects and the affordability of resale homes.

The median price of non-landed resale homes outside the central region for the first half of the year, for example, was $1,013 psf - 40 per cent lower than the $1,414 psf offered at new launches.

As was seen during past rounds, cooling measures have had a limited short-term impact on private resale condo prices, said Ms Sun. Prices dipped slightly after the December 2011 round, but rose after the January 2013 round.

"Resale private condos that are well located, have good design attributes and ample amenities should remain attractive," she said.

But those who can stomach a wait might wish to take advantage of relatively lower rents first, which have been on a slow and steady decline since the second quarter in 2013, said Mr Ku.

"If we knew more clearly why the Government suddenly implemented these measures - maybe they foresee a difficult economic environment soon - you'd have more information to decide," he said.

"But if you can wait, then let the dust settle first."