The Government announced new property measures on Friday that will aim to further safeguard the interests of Singaporeans for whom their property purchase is primarily for residence, rather than financial investment.
The most notable measure was the extension of the second HDB concessionary loan to downgraders. “This is certainly welcome news,” says PropNex CEO Mr Mohamed Ismail, “especially for existing HDB owners without a strong credit standing.”
He explains that such people who may be in a difficult financial situation usually find it hard to secure a bank loan after selling their initial property as their credit background is weak. The second HDB concessionary loan is extended to downgraders on condition that they are only allowed to keep 50% of the cash proceeds from the sale of their initial property or $25,000, whichever is higher. The rest must be used to finance the second flat.
“Allowing these people to unlock 50% of their cash proceeds while still qualifying for the HDB bank loan will certainly be helpful to downgraders,” says Mr Ismail, “and we may see an increase in market activity due to an increase in downgraders.” However, he declines to predict if there will be an increase in resale flat prices as it is too soon to assess the impact on prices.
Other measures announced include a quota cap of 8% PRs in each block and 5% within each neighbourhood, as well as a reduction of $10,000 in the CPF Housing Grant for couples which consist of one Singaporean Citizen and one Permanent Resident (PR).
Modelled after the Ethnic Integration Policy (EIP), the Singaporean Permanent Resident (SPR) Quota applies to all PRs except Malaysians who, like all PRs, have to follow the EIP.
“This policy is restrictive in nature only to PRs,” says Mr Ismail, “and we can anticipate its effects to be similar to those of the EIP.”
He explains that besides a more even distribution of PRs across the 162 neighbourhoods here, PRs selling their flats in neighbourhoods or blocks that have reached their quota will be able to command a higher price when selling to other PRs. Conversely, PRs selling flats in estates not popular with PRs may only be able to sell at a comparatively lower price.
With regards to the $10,000 reduction in CPF Housing Grant, a $10,000 premium is also payable for similar couples who buy a new flat from HDB. However, the $10,000 will be granted or returned once the PR spouse becomes a Singapore Citizen, or when the couple bear a child who is a Singaporean Citizen.
“These moves should allay the fears of those Singaporeans who feel that PRs are partly to blame for driving up HDB resale flat prices,” opines Mr Ismail, who reminds us that as the PR population only accounts for 8% of the HDB dwellers, their impact on prices so far has been minimal at most.
He also feels that the withholding $10,000 of the grant until the PR converts to Singaporean Citizenship or they bear a Singaporean Citizen is fair, as this means the only ones who are penalized are those who do not have a long-term commitment to the country.
Finally, the Minimum Occupation Period (MOP) for buyers of HDB flats without CPF Grants was raised from 1 year and 2.5 years for bank loans and HDB loans to three years regardless. Mr Ismail feels that there will be little impact from this policy which will, at most, just encourage buyers to adopt a mid-to-long term view when buying their flat.
“Most HDB buyers are not buying their flats with the aim to flip,” he explains, “primarily because while private property prices may rise 30% or more within a year, HDB prices rarely go up by more than 10%. Looking at the HDB Resale Price Index (RPI), the last ten years only saw double-digit growth in 2007 and 2008.
“So, after deducting 1% agent’s commission as a buyer, 2% agent’s commission as a seller and about 2% for stamp duties, a seller of a HDB flat would only make about 5% profit. For a 4-room flat costing $340,000, that would only equate to $17,000, which does not make any resale within one year worthwhile.”
Mr Ismail maintains his forecast of 5–8% overall growth in the HDB RPI for 2010.
Background to Current Property Measures
Just under a fortnight ago, Finance Minister Tharman Shanmugaratnam announced during Budget 2010 two preventive measures to avoid a property bubble from forming: the Seller’s Stamp Duty for those who sold their residential properties and residential lands within one year of their purchase; and the lower Loan-To-Value ratio of 80% from financial institutions regulated by the Monetary Authority of Singapore. These aimed to both discourage flippers and encourage property buyers to exercise prudence in their purchase.
A progressive property tax structure for all owner-occupied residential properties was also introduced, benefitting the lower-income households in smaller properties, with the previous tax rate of 4% across the board replaced by a new scheme of zero per cent tax rate for the first $6,000 of a property’s Annual Value (AV), 4% for the next $59,000 and 6% for the amount exceeding $65,000.
Last year’s budget saw measures aimed at helping Singaporeans in the lower-income bracket. A 40% property tax rebate for owner-occupied residential properties was introduced for 2009, while the Additional CPF Housing Grant was increased from $30,000 to $40,000 and the household income ceiling was raised from $4,000 to $5,000.