Tuesday, August 27, 2013

Singapore PRs need to wait 3 years before buying resale HDB flats

Singapore's Ministry of National Development has published a press release today in its web site announcing that Singapore Permanent Residents (Singapore PRs) will need to wait 3 years before they can buy a resale HDB flat in Singapore. Before the announcement Singapore Permanent Resident (SPR) households, i.e. SPR households with no Singapore citizen owner, could buy resale HDB flats as soon as they acquire SPR status.

This new property cooling measure will apply to resale applications received on or after 27 Aug 2013, 5:30pm.

How will this impact the Singapore property market? Previously in a blog article in Housing Matters blog named Who Buy Resale Flats?,  Ministry of National Development has revealed that 20% of resale HDB flats were bought by Singapore PRs. In fact, almost half of the buyers in 4 room HDB category (45%) were Singapore PRs. Although many PRs who carry this status for more than 3 years are still eligible to buy HDB flats, many will not be able to do so. In fact on the ground, one of the main reasons many seem to go to Singapore PR looks like to be able to buy an HDB flat (but I am not sure this can statistically be proven).

Resale flat buyers - Source : Housing Matters Blog

According to some analyst, Singapore permanent residents (PRs) are expected to show greater demand for rental and private homes following the latest measures targeting the purchase of resale HDB flats. “For the next three years, this is going to be a lifeline for the private housing market as a lot of private homes will be completed.” says Nicholas Mak.

I really suspect this expectation will be realized since private homes are beyond reach of many PRs going for resale HDBs. If they go for private homes we will have another group of over extended borrowers to add to the pain when the property prices goes down.

By the sudden policy change, at least 150 property deals have hit the skids. The figure is an early estimate by property agents, who say that similar cases are streaming in, with PRs having been caught out by Tuesday night's surprise announcement, which took effect immediately:
"IT customer service officer Gong Wei, who got his PR status last year, says the new rule is a decision by the Government and he can accept the policy, but a grace period for those who are in the middle of a deal would be a fair concession to make."
To cool the runaway property market further MND has also revised the mortgage loan terms:
To ensure financial prudence in purchase of public housing and discourage over-consumption, we will reduce the maximum tenure for HDB housing loans from 30 years to 25 years. The Mortgage Servicing Ratio (MSR) limit will also be reduced from 35% to 30% of the borrower’s gross monthly income (see Annex C for details). These measures are in line with those introduced by the Monetary Authority of Singapore (MAS) to encourage financial prudence among borrowers, which is especially important given that the current low interest rate environment is unlikely to be sustained.  
In tandem, the MAS will reduce the maximum tenure of new housing loans and re-financing facilities granted by financial institutions for the purchase of HDB flats (including DBSS flats) from 35 years to 30 years. New loans with tenures exceeding 25 years and up to 30 years will be subject to tighter loan-to-value (LTV) limits. 

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