How could the New ABSD 2018 Cooling Measure affect you?


Published 10 Jul 2018


In line with the MAS warning of a bubble building up and cautioning developers, banks and home buyers to proceed with care, the Government announced the new ABSD rates for purchases on and after 6 July 2018. In addition, the maximum loan is also reduced from 80% to 75% for all the purchases on and after 6 July 2018.

This is the first cooling measure since 2013 after the TDSR has been introduced to tighten the loan limit of every purchaser.

The new cooling measures took the whole real estate market by storm. Higher ABSD and lower LTV come together, pretty scary?!

Everyone is rushing to beat the midnight clock before the new measures kick-in.  As a result, more than 1,000 units were sold in the 4 hours. A new record is set!

DATE ABSD RATES ON OR BEFORE 5 JUL 2018 ABSD RATES ON OR AFTER 6 JUL 2018
SC 1st Residential Property 0% 0% (no change)
SC 2nd Residential Property 7% 12%
SC 3rd Residential Property 10% 15%
SPR 1st Residential Property 5% 5% (no change)
SPR 2nd Residential Property 10% 15%
Foreigner 15% 20%

What impact will the higher Additional Buyer’s Stamp Duty (ABSD) rates and loan-to-value (LTV) limits have on private home buyers in Singapore – and how will these affect HDB resale prices and the en bloc market as well? Channel NewsAsia spoke to analyst Ku Swee Yong, CEO of International Property Advisor, for his views.

Subject Property HDB Flat Private Properties

No. of Home Loan
No Outstanding Loan No Outstanding Loan 1 Other Home Loan 2 Other Home Loan
Max Tenure (Years) 25 30 30 30
Loan-to-Value 75% 75% 45% 35%
Minimum Cash 5% 5% 25% 25%

Long queues were seen outside the showflat of Riverfront Residences in Hougang late Thursday night. This comes after new property cooling measures were announced by the Singapore Government, which included a raise in Additional Buyer’s Stamp Duty (ABSD) rates.

The recent rush of home buying will not last as developers are not likely to slash prices after the new property rules take effect, say analysts. Chan Luo Er with the details.

“The government has been monitoring the property market closely. We are very concerned that prices are running ahead of economic fundamentals,” said Mr. Lawrence Wong, Minister for National Development on Thursday.

“There is a large supply of units coming on stream and interest rates are going up. We want to avoid a severe correction later, which can have more destabilizing consequences.  Hence we are acting now to maintain a stable and sustainable property market,” he added.

The ABSD to be raised by 5% for citizens and permanent residents (PRs) for buying second and subsequent homes.

However, there is no change for the citizens and PRs who are purchasing their first home.

Why the New ABSD Cooling Measure?

1) Wary of Over Priced in the Short Future

Singapore property market has seen a resurgence in prices and transactions over the past year.

Prices of private housing have increased by 9.1% since Q2 2017. This has mostly offset the cumulative price decline of 11.6% during the 4-year period between mid-2013 and mid-2017.

The number of property transactions over the last 12 months was around 25% higher than in the previous 12 months. New housing loans over the last 12 months have risen by 34% year-on-year.

It is good to see the recovery, but it needs to recover in line with economic fundamentals, not ahead of income growth.

A rapid increase in prices within the short term will raise the risk of a destabilizing market correction later when additional supply comes on-stream.

2) Wary of Over Supply in the Future

There has been aggressive bidding by developers both in en-bloc sale tenders and government land sales (GLS).

In the supply pipeline are around 20,000 units from GLS and en-bloc sites pending planning approval, on top of the 24,000 unsold units from projects with planning approval, according to the Urban Redevelopment Authority last month.

All buyers need to be mindful of the supply and demand dynamics and we have to ask ourselves whether demand will be able to match the big supply that’s coming onstream in the next few years.

This is expected to more than double the number of units available in the near term. If left unsold, this could result in a supply imbalance and weigh on the market.

“There’s a Chinese analogy referring to China’s property market where the flour can cost more than the bread,” said Economist Selena Ling from OCBC Bank.

The current en-bloc fever has contributed to aggressive land bids by property developers which reflect their bullish outlook, she added.

While the near-term demand-supply dynamics still look supportive, a ramp up in launches can be anticipated by 4Q18 going into 2019, she said.

Coupled with rising short-term interest rates, there may be room for caution, especially in light of potential downside growth risks due to the escalation of US-China trade tensions that could spill over to trade-dependent economies like Singapore, said Ms. Ling.

In Conclusion

Singapore property is still a safe investment as the government is monitoring the supply and demand very careful to prevent a bubble from building up.  Looking at the new cooling measure, the developers will price it more attractive.

Don’t forget about the costs associated with buying and holding a physical property, i.e. mortgage interest costs (for leveraging), stamp duty, brokerage, insurance, renovation, maintenance and sinking fund fees, property tax and agent fees, all of which would erode the returns on your property investment.

Always buy at your own means, invest but not speculate, the property market is going uptrend in long-term, therefore holding power is important.

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