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The Lowdown On Property Cooling Measures In Singapore

There are many property development companies in Singapore’s stock market. So, the state of property cooling measures here could be interesting and important for some stock market investors.

In late June, Ravi Menon, managing director of The Monetary Authority of Singapore, announced that property cooling measures “still remain necessary.”

The government started implementing property cooling measures since 2009 to prevent a property market bubble from forming.

Summary of cooling measures

To recap, here is a summary of some of the cooling measures that have been implemented:

1. Additional Buyer’s Stamp Duty

The additional buyer stamp duty is applicable to Singapore citizens purchasing a second property. Permanent Residents and foreigners have to pay the additional buyer’s stamp duty from their first property purchase in Singapore.

2. Sellers’ Stamp Duty

This applies to selling a property within a period of a few years, with the stamp duty decreasing for each additional year a person has held the property. The holding period was adjusted to a high of four years in 2011 but was reduced in March this year (to three).

3. Total Debt Servicing Ratio (TDSR)

A buyer of a property cannot have a total debt servicing ratio exceeding 60% of his or her net income. The total debt calculation includes credit card debt, car loans, and housing loans.

4. Mortgage Servicing Ratio

A property buyer’s mortgage servicing ratio cannot exceed 30% of his or her income.

What lies ahead

MAS also reported in late June that property prices in Singapore have dropped by 12% over the last three-and-a-half years. This followed a strong increase in property prices of close to 60% over just 17 quarters, an increase which prompted the government to take action.

MAS stated that the adjustment to decrease the holding period for the additional seller stamp duty in March this year is not a signal that the central bank will be winding down other property cooling measures. The current additional buyer stamp duty and loan-to-value limits will still be retained for the foreseeable future.

MAS noted as well that the TDSR is a “structural measure” that has been initiated to ensure people who take on debt have enough liquidity to tide them through rough times. This is not a “cyclical tool” that MAS is using, but is something for the longer term.

The Foolish bottom line

Property has been one of the best performing asset classes in Singapore as low interest rates and high demand have led to price appreciation. But since the property cooling measures came into effect, property prices have not appreciated as much as in the past and investors need to consider the possibility that with the cooling measures in place, property prices are unlikely to experience strong surges in price in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.