Just a few days ago, I got a friend who wrote this:

“realises that he has missed a window of opportunity, when every man on the street have their own theories on property investment…the next downturn perhaps…..”

And then yesterday, the government announced several measures to cool our property market.

Compared to previous measures, these measures are quite significant and will help to moderate the demand among property investors. Coupled with plans to increase the supply of new flats, hopefully we can prevent a property bubble from developing further.

A summary of the changes are as follows:

1. Increase the holding period for imposition of Seller’s Stamp Duty (SSD) from the current one year to three years.

2. For property buyers who already have one or more outstanding housing loans at the time of the new housing purchase:

(a) Increase the minimum cash payment from 5% to 10% of the valuation limit; and

(b) Decrease the Loan-to-Value (LTV) limit for housing loans granted by financial institutions regulated by MAS to these buyers from the current 80% to 70%.

Further, HDB has also announced additional restrictions on the co-ownership of HDB flats and private properties.

3. The minimum occupation period (MOP) of non-subsidised flats for resale and subletting of flat will be increased from 3 to 5 years.

4. Buyers of non-subsidised flats will be disallowed from concurrently owning both an HDB flat and a private residential property within the MOP.

All these measures took immediate effect from yesterday.

More details here:

MND Press Release

HDB Changes

The Prime Minister yesterday announced some changes to the current HDB income ceiling of $8000 in his National Day Rally.

Those households earning $8000 to $10000 will be allowed to buy flats under the Design-Build-and-Sell Scheme (DBSS) and executive condominiums. However, they will still not be allowed to buy Build-to-order (BTO) units.

A typical four-room BTO flat costs $300,000, a DBSS flat around $500,000 and an executive condominium around $700,000.

PM Lee also mentioned that there will be 22,000 BTO units to be built next year.

There will also be moves to further cool the property market. These will be announced later today.

HDB to Raise Income Ceiling (Straits Times)

The Housing & Development Board (HDB) recently unveiled policy changes designed to hurt speculators and make it more expensive for non-Singaporeans to buy government-subsidised flats. These changes include:

1) It will now be possible to apply for a second concessionary loan, even if you are downgrading. However, the quantum of the second concessionary loan will be reduced by the full CPF proceeds and part of the cash proceeds from the sale of the existing or immediate past HDB flats.
2) Minimum occupation period for resale of non-subsidised flats has been increased to 3 years.
3) Lease buyback scheme extended to those who previously owned 4-room and bigger flats.
4) In case of Singapore PRs who marry citizens, HDB will withhold $10k of the housing subsidy until the SPR takes up citizenship or they have a Singapore citizen child.
5) New non-Malaysia SPR quota of 5% at neighbourhood level and 8% at block level.
6) Ethnic limit for Indian/Others raised to 12% at neighbourhood level and 15% at block level.

We are now starting to see more and more measures being put in place to prevent a runaway increase in HDB and private property prices.

Prices have already gone up a lot mainly because the increase in HDB supply over the past couple of years was insufficient to meet the increase in demand from a fast growing population. Price is always a function of demand and supply – as simple as that.

When all these changes take effect (and our population starts to decrease due to more stringent criteria on foreign workers), HDB prices should stabilize and perhaps even drop. However, I don’t expect a drastic drop as the cost would be too huge for the government to let it happen.

MAS, MND and MOF made a joint statement on Friday announcing the following measures to ensure a stable and sustainable property market:

1) Introducing a Seller’s Stamp Duty (SSD) on all residential properties and residential lands that are bought after today and sold within 1 year from the date of purchase; and

2) Lowering the Loan-to-Value (LTV) limit to 80% for all housing loans provided by financial institutions regulated by the Monetary Authority of Singapore (MAS)

The steps are essential (and probably insufficient on its own) to prevent a bubble from forming in our property market.

Full details of the changes can be found here:

http://www.mnd.gov.sg/newsroom/newsreleases/2010/news19022010.htm

Fresh data from the Housing Board (HDB) showed that the median cash over valuation (COV) for HDB resale units rose to $24,000 in the fourth quarter of 2009. That is double the $12,000 median in the previous three months and breaks the COV record of $22,000 achieved in the fourth quarter of 2007.

The top three towns had medians of $50k, $50k and $38k for executive units; $40k, $33k and $31.5k for 5-room units; and $35k, $35k and $30k for 4-room units respectively.

There was even a 5 room resale HDB unit sold for $730,000 with a whopping COV of $85,000.

For those who did not study statistics, median is defined as the numerical value separating the higher half of a sample from the lower half.

Say, if there were a total of 7 transactions with COV of $10k, 15k, 17k, 19k, 22k, 25k and 30k, the median would be the 4th value or $19k. This is different from the average which will take the total of all transactions divided by seven.

The ever rising COV is driven by a mismatch of the number of families with immediate housing needs compared to the number of sellers and new units. The problem is accelerated by the fact that only 11,000 HDB units were built over the last three years.

History has shown time and again that asset prices cannot go up indefinitely. Yet, human tendency is always very much inclined towards following trends – more so when the trend is very strong. This behavior is a common factor towards the formation of asset bubbles.

If prices are rising, people will believe they will continue to rise and rush to buy.

At the end of the day, it is always prudent to buy something that is affordable than to overstretch the budget. After all, a HDB unit is just a 99 lease – you do not even own the unit and technically, the price should depreciate back to zero at the end of the 99-years lease!