HDB prices have been rising and the citizens of Singapore have been complaining about the exorbitant for a public housing. Flats at Mei Ling Street in Queenstown and Bishan had traded over S$1 million.
The Government of Singapore had been introducing cooling measures hoping to drive down the prices of the public flats. After all, HDB was set up to provide affordable homes for all citizens in Singapore.
What are the cooling measures?
- Reduction of Mortgage Servicing Ratio (MSR)
The MSR for HDB concessionary loan has been reduced from 35% to 30%.What it means
Mortgage Servicing Ratio or MSR measures the percentage of your income that you can use to service your monthly housing loan. For example, if you earn S$3,500 monthly and previously with the MSR at 35%, your MSR would have been at S$1,225. However with the currently cooling measure that reduces the MSR to 30%, your current MSR is at S$1,050. A drop of S$175. This would mean that the loan amount that will be granted will be reduced. If you are currently looking at upgrading your home, you might need to shelve the thoughts for a few more years.
- Reduced Maximum Loan Tenure
The maximum tenure for HDB loans is reduced from 30 to 25 years, while maximum bank loan tenure is reduced from 35 to 30 years.What it means
The maximum tenure is the amount of time required to pay your loan in full. Currently for a 30 years loan tenure, the bank is only willing to loan 60% of your property purchase price. To loan the full 80% loan however, the maximum tenure you can take is only 25 years. With a shorter tenure period, it will means that monthly repayment will have to increase which is capped by the MSR discussed earlier. Combining these two measures means that the total loan amount that the property buyer can get is reduced further.
- Increased Wait Time for Permanent Residents (PR)
Permanent residents (PR) will have to wait 3 years before they are allowed to purchase any HDB property.What it means
Previously, immediately getting their PR status, these new PRs can purchase HDB flats and this accounts partially for the rising flat prices. However, with the introduction of this cooling measure, the new PRs can only rent a place to stay in or to purchase private properties.
How does it affects investors?
Although prices of HDBs should go down but it also means that it will be harder for investors to start investing in properties, unless they have already paid all their housing loans in full or they are cash rich. Investors typically do not wish to see their money sitting in their bank accounts, earning miserable interests and thus would be looking for other instruments to invest their money in. Being inspired landlords, it would be very likely that these investors will start to put their money into investing in REITs, where they will continue to collect rents in terms of distributions, or in stocks where they can get their money to work harder for them.
Whether the outcome of these cooling measures will really help drive the HDB prices down, one thing for sure is that the Government is trying to drive the message across clearly:
HDB flats are for housing not investment