If the last time you went property hunting was in 2010 or earlier, you could be in for a headache. Try buying a new house now, and you’ll realise there are a zillion restrictions that didn’t exist before. To make it easier for you, we’ve compiled a list of the major updates that you need to know about. Here’s what’s changed:
The rules regarding loan tenure and age have changed
In October 2012, the Monetary Authority of Singapore (MAS) decided we were in debt for way longer than is healthy. This resulted in a huge change toward maximum loan tenures, which now factor in your age.
The maximum loan tenure is now 35 years. In addition, if your loan tenure exceeds 30 years, or your loan tenure plus your age exceeds 65 (the designated retirement age), you’ll get a maximum a Loan-to-Vale (LTV) ratio of 60 per cent. For example:
Say you’re 42 years old, and want to take on a 25 year loan to buy a new condo. This would exceed the retirement age limit of 65 (42 + 25 = 67). If the condo costs $1.5 million, the maximum loan – at an LTV of 60 per cent – would be $900,000, and the down payment would be $600,000.
If you have co-borrowers, the bank will use your Income Weighted Average Age (IWAA). For example, say your spouse is the co-borrower. Your collective “age” will be calculated as follows:
(Age of borrower A x monthly income of borrower A) + (Age of borrower B x monthly income of borrower B) / combined monthly income
For example, say you earn $7,000 a month, while your spouse earns $3,500 a month. You are 42 years old, and your spouse is 39 years old. Your IWAA would be:
(42 x 7000) + (39 x 3500) / 10500 = 41
To get the full LTV of 80 per cent, your loan tenure cannot exceed 24 years (24 + 41 = 65).
(Note that, if a co-borrower has no income, they are excluded from the IWAA calculation).
The Total Debt Servicing Ratio (TDSR) is here to help with the difficult task of property loans. Help make it harder, that is.
In June 2013, MAS dropped a bombshell on the property market. It passed the Total Debt Servicing Ratio (TDSR) framework, which caps your property loan repayments to 60 per cent of your income (inclusive of other debts).
So if you earn $5,000 a month, your property loan repayments plus your other debts (car loans, personal loans, credit card loans, etc.) cannot exceed $3,000 a month. If it would be higher than this, you need to apply for a smaller loan.
In addition, there’s a haircut on income that’s not derived from fixed salaries. If you’re self-employed, for example, or you have income from renting out properties, these count as being 30 per cent lower for TDSR purposes.
For example, if you earn $5,000 a month on commissions, you would count as earning $3,500 per month. Your maximum monthly repayments cannot exceed $2,100 per month.
If you’re just looking to refinance however, you can relax – the TDSR restriction won’t apply to refinancing, if you bought your house before it came into effect.
You might also want to note that the TDSR is not, as is commonly believed, a property cooling measure. TDSR is a structural change in loan procedures, which means it’s more or less permanent.
Cash Over Valuation (COV) is no longer negotiated separately
Remember how we we used to negotiate the COV on a resale flat, after finding out the actual value? It doesn’t happen anymore. HDB put an end to it in March 2014.
From now on, you have to negotiate the entire price of the resale flat first while property hunting. Once the Option to Purchase (OTP) is in place, only then will HDB give you the actual valuation of the flat. Any amount in excess of the valuation is the COV.
For example, say you agree to buy a resale flat for $700,000, because you have an allergy to money or something. After signing the OTP, the HDB valuation reveals the flat is worth only $650,000. The excess $50,000 becomes the COV.
That said, note that COVs are vanishing because of this. If you’re selling, you can no longer assume it’s a norm. Also, note that the standard OTP for flats has been raised from 14 days to 21 days.
To make sure you’re getting a price close to valuation, check out the neighbourhood on 99.co. Buyers, peg your offer to the prices of surrounding units, before making any offers. Sellers, view your competition (other listings in your area), and try to stay realistic.
The ABSD rules have been further updated, since 2011.
The Additional Buyers Stamp Duty (ABSD) came about in December 2011, so you may be familiar with it by now. In case you have been out of the property hunting circuit since 2010, the ABSD has been revised more than once, and the rates are no longer the same.
The original ABSD was a 10 per cent tax on foreign buyers. Permanent Residents (PRs) would pay three per cent ABSD on second and subsequent properties, and Singapore citizens would pay three cent ABSD on the third and subsequent properties.
Today, the ABSD is 15 per cent for foreign buyers. PRs pay five per cent ABSD on their first property, and 10 per cent on second and subsequent properties. Singaporean buyers pay seven per cent ABSD on their second property, and 10 per cent on subsequent properties.
An important note if you’re trying to sell your flat and buy another house:
If you’re a citizen, and have set your heart on buying this oh-so-lovely unit while property hunting before selling your existing flat, you have to pay the seven per cent ABSD first. The new house is technically your second property. But if you sell your flat within six months of buying your other house, you’ll be reimbursed for the ABSD.
Yes, it’s stressful and inconvenient; which is why you really should sell before buying. Even if it means staying with the in-laws for a period of time.
Sellers Stamp Duty (SSD) has been reduced. At least one thing got easier.
In March 2017, the Sellers Stamp Duty (SSD) was reduced. The SSD is a tax imposed on sales proceeds, when a house is sold too soon after it’s bought.
Previously, the SSD rates were:
– 16 per cent for houses sold within the first year of purchase
– 12 per cent if sold within the second year
– Eight per cent if sold within the third year
– Four per cent if sold within the fourth year
The new SSD rates are:
– 12 per cent if sold within the first year of purchase
– Eight per cent if sold within the second year
– Four per cent if sold within the third year
We also feel a need to say something given the en-bloc fever
Here’s a little known fact to raise your blood pressure:
If you buy a property after months of property hunting, and it goes en-bloc within the first three years, you get the “privilege” of paying the SSD. Yes, even if you voted against it, and there’s nothing you can do about it. Just something to keep in mind, if you want to buy in expectation of an en-bloc sale.
Be careful what you wish for.