Property cooling measures #8: If not capital gains tax then...

By The Folks @PropTalk - March 12, 2013 11 Comments

Comments made by our National Development Minister's last Friday, whereby he wants to lower the prices of new HDB flats, have sent jitters in the property market that the Government may bring in a fresh round of market cooling measures. This has sent property stocks tumbling over the past few trading sessions.

Property developers are concerned that lowering of HDB prices could affect the private market eventually as buyers switch to the HDB market. And some observers has interpreted the recent comments as a sign of the Government's willingness to further intervene in still buoyant private market, with increased sentiment and expectations of Round 8 of new cooling measures.

As you may recall, the seventh and toughest round of market cooling measures was unveiled in January of this year.

Rumors have been circulating in the market since last week that the Government may soon slash the mortgage servicing rate for private homes. This is the proportion of monthly income a borrower spends to service his monthly mortgage installments.

If you have been following our blog, we did put forward the possibility of reinstating the property gains tax by the Government in an earlier post. This has generated quite a lively discussion amongst our readers.

The wife and I decided to take another chance on our somewhat murky crystal ball and it has this to say: the mortgage servicing ratio for loans granted by banks on private home purchase may be capped as low as 30% of a borrower's gross monthly income. The current ratio can vary from anything between 30 to 60%.

The 30% mortgage servicing ratio was already implemented for bank loans on HDB flat purchase as part of the last set of cooling measures in January. 

To illustrate the impact of such a reduction in mortgage service ratio (illustration taken from a previous news article report): Let's take a buyer who takes up a 30-year loan for a $700,000 "shoebox" apartment. And let's assume that the loan to be 80% of the apartment's value, with interest rate pegged at 1.5%. Based on a 40% mortgage servicing ratio in the past, he would need to have a gross monthly income of $4,830. But for the same property at a 30% ratio, he would need to make $6,440 a month.

Will this cause a further dent in private property prices? The wife and I certainly think so.

When is this likely to happen? Sooner than you may think.

Click on the link below to read our previous post on property cooling measures round #8:


11 comments to ''Property cooling measures #8: If not capital gains tax then..."

  1. So, when MSR is reduced, shoeboxes and small apts will $tand to gain becasue quantum is lower?

  2. with smaller apts, less space is needed to house many many people. indeed tis is garment policy

  3. The Folks @PropTalkMarch 12, 2013 at 9:51 PM

    Hi Anonymous,

    Assuming one can afford the $1,600 increase in monthly loan repayment for just a $700K purchase.

    Not unusual for small apartments and even shoeboxes to cost upwards of $600K these days.

    It will also be interesting to see how quickly local homebuyers will get used to the idea of fitting more than 2 people in a 500+sqft apartment that comes with balcony, air-con ledges and planter boxes.

  4. I do not think the government is necessary to further rein the private property market. As long as HDB is affordable, the role of government has been done. Government must leave some property for people to gamble just like casinos in Singapore. Ohterwize, Singapore's money will move to other places to speculate, which will be enven more risky for Singaporean.

  5. We Singaporeans do not gamble with property. We invest with care and hard earned monies. Neither do we throw pigs in our water channels nor blatantly rape our womenfolk. For those who wants to gamble or who are used to a freer rein, please take the monies to gamble elsewhere.

    We here in Singaporeans want steady sustainable growth, in alignment with our economic growth. Indeed our Government (for all the complains hurled at it), is commendable for doing a good job. We make some mistakes, rectify and move on from there.

    No matter, the Singapore Government is worthy of a pat on the back. Thank you PAPPY

  6. I beleive that gambling starts from either Sellers / Agents who fix the Sky high prices...and now you can see they still stay high...but unfortunately buyers know what is to be done....thanks to govt for supporting the Buyers...

  7. New private home sales fall sharply in February....Dreams came true for Buyers...but,it is still better to wait for few months...for good deal...

  8. Wonder why the hype is still so strong despite property index reaching sky high.

  9. cos sinkaporeans hv kia su mental lity? also, wait few months for better deals/ March, april , may sales will determine the strength of mkt for hole year.

  10. Recent transactions are all based on the big discount given by the developer to offset the ABSD. Basically, their margin has gone down by 7 - 10% at the moment compared to sales before 11 Jan '13. So, be patient for 4/6 months to bring the condo price back to basic.

  11. I went to a talk. The Professor economist and another property expert say if March APril May hot hot hot, whole year will be hot. Looks like prices not calming / coming down.