New cooling measures is a waiting game

On September 29 (Thursday) evening, the government announced new property cooling measures again. The new rules aimed to moderate demand and ensure prudent borrowing amid rising interest rates. They were also meant to address the public concern of rising home prices and to improve housing affordability. While industry stakeholders and homebuyers were caught by surprise, some felt that the new measures are too moderate and come too late.

Cooling measures came late at night

Gone are the days between 2010 and 2013 when cooling measures often came on a Friday afternoon. They killed our TGIF mood and spoil our weekend. Obviously, the new management at MAS are more understanding now. Since 2018, they only did this on a Wednesday or Thursday.

But why did the authority pick the time shortly after 11.45 pm?

It had nothing to do with providing hints for 4D numbers for the weekend. It was meant to avoid what happened on 5 July 2018 (Thursday) when additional cooling measures were announced in the late afternoon. Under short notice, developers rushed to open their not-yet-ready sales galleries before the new rules kicked in by midnight. And desperate buyers hurried down to do Singapore’s most popular sports of queuing the whole night. (Recently, under rising interest rates, the crowd has moved to different branches of local banks to practice their favorite sports.)

To prevent anyone from flouting social distancing rules, the last round of property curb on 15 December 2021 (Wednesday) was released right before midnight. They timed it so nicely that, when the announcement was done, it was almost time for the new law to take effect.

Kudos to the people-in-charge in MAS and MND who sacrificed their personal time to work before midnight. Because of them, developers, agents and mortgage officers no longer need to return to their workplace to help customers with last-minute bookings or applications. Except for MAS and MND, the new arrangement promises better work-life balance for everyone.

No ceiling and no end to rate hikes

Last Friday (October 7), the good news of lower unemployment rate in the US has ironically become bad news to the market. Because Federal Reserve now has a good excuse for more aggressive rate hikes. The next round will be early November. The same month Singapore’s MAS is expected to tighten monetary policy again. There seems to be no ceiling and no end to raising interest rates.

For the banks, their profit from higher mortgage rates will come in nicely to cover loss of business from lower company loans. But borrowers will gradually feel the pain of high loan repayments. They will be forced to pay back or at least pay down not just mortgages, but all types of bank loans.

Remember what our parents taught us? Don’t borrow money. Don’t buy anything you can’t afford. They are right!

A high interest rate environment will stay longer than what everyone expects. All big-ticket items suddenly become less affordable. It results in lower discretionary spend of consumers. This will inevitably slow down the economy which is bad for the outlook of the property market.

Raising TDSR to 4 percent is meaningless

MAS raised the medium-term interest rate floor of total debt servicing ratio (TDSR) and mortgage servicing ratio by 0.5 percentage point. For private properties, TDSR is now 4 percent instead of 3.5 percent.

However, as of today, the 12-month fixed deposit rate for OCBC Bank premier and Citigold customers is 3.1 percent and 3.2 percent respectively. Also, mortgage rates have gone up accordingly to ensure a comfortable profit margin for the banks.

After the cooling measures announcement, local banks immediately posted their new mortgage rates the following Monday. Their efficiency is impressive!

DBS Bank raised their 2-year fixed home loan rate to 3.5 percent – a whopping 27.3 percent jump in 3 months from their previous rate of 2.75 percent published end of June. UOB fixed mortgage rate shot up even higher to 3.85 percent.

What is the point of raising TDSR to 4 percent when fixed mortgage rate is already 3.85 percent? Are we expecting another “before midnight announcement” on higher medium-term interest rate soon?

With higher ABSD and property tax, there is waning interest from property investors. The private home market, particularly the mass market condo segment, is mainly fueled by HDB upgraders. But rising mortgage rates is already challenging the affordability of this group of buyers. How relevant is a 4 percent TDSR in this case?

The September 29 cooling measures were announced too late and at a bad time. If the purposes were to moderate demand and ensure prudent borrowing amid rising rates, the government should have done it months earlier instead of waiting till the end of the 3rd quarter.

The 15-month wait is the killer

Lowering loan-to-value of HDB loan from 85 percent to 80 percent screens out only marginal buyers. If homebuyers cannot fork out 5 percent more in cash, they can’t really afford their dream home in the first place. Besides, they can consider a smaller or more affordable HDB flat.

In contrast, the 15-month wait for private home owners to buy HDB flats is killing the game. Because from now on, buyers need to exercise both prudence and patience moving from a private home to a public flat. The implications are:

1) It doesn’t matter whether the sale of your private home is a gain or a loss, you still need to wait.

2) You can upgrade. But you cannot downgrade. Unless you are willing to wait for 15 months or wait until you are 55.

Total waiting time is longer than 15 months

The problem is: Most people only own one home.

Imagine those who bought a shoebox unit years ago. Now they need more space from a good size HDB flat because of working from home or starting a new family. In reality, the wait for rightsizing is longer than 15 months when taking into account selling, waiting, buying and renovating.

When a couple knows a newborn is coming, they need to start selling their private home right away. Because from the sale of their private home to finally settle down in an HDB flat, the baby will have celebrated its one-year-old birthday.

HDB said it will exercise flexibility to waive wait-out period for some downgraders purchasing resale flats. You can be sure that the list of appeals will be long. It may take months to get a reply from the authority.

Will more choose renting? Unfortunately, people are frightened by media reports on Singapore’s record high rent and higher rents in the near future. Above all, Singaporeans view renting as throwing money away. They see renting as the last resort and a short-term solution. Few are open to the idea of long-term renting to owning a home.

The conclusion is: No move is good move, unless it is really necessary.

HDB resale prices pushed up by private home buyers?

Two weeks ago, the media told us that there are 266 million-dollar HDB resale flat transactions so far this year. The number far exceeds the 259 units recorded in 2021. After cooling measures announcement, analysts predict million-dollar HDB deals to slow down. Instead, 3 or 4-room flats will become popular, especially for downgraders above 55-year-old.

The stock market tends to make most investors look foolish. Similarly, the property cooling measures tend to make recent homebuyers look foolish.

HDB told us that the number of private property owners buying HDB resale flats has doubled in 2021 and the first quarter of 2022, compared with 2019 and 2020. But HDB is unable to share specific figures for this group of buyers. Therefore, we can’t comment on their 15-month wait decision.

The latest curb came as HDB resale prices increased by 7.8 percent in the first nine months of 2022 despite rising interest rates. Furthermore, HDB just announced that resale prices rose 2.4 percent in Q3. However, most people don’t know that price growth has slowed down from 2.8 percent in Q2. It is also lower than the 2.9 percent quarter-on-quarter growth in Q3 2021.

Most people only read the article headline “HDB resale prices rise for 27th straight months”. If they bother to check the history of HDB Resale Price Index, they will know that prices did rise for 10th straight quarters from 2020 Q2 to 2022 Q3. But they forgot the fact that HDB resale prices have fallen 27th straight quarters from 2013 Q3 to 2020 Q1.

To demonstrate the effectiveness of the cooling measures, perhaps the next quarter article headline will read “X% drop in HDB resale prices reflects impact of government’s property curb”. And the new cycle begins again.

A waiting game for all

The pain point of the new cooling measures is not only a 15-month wait for private property owners who plan to downgrade to HDB flats. It is a waiting game for all.

Developers see new cooling measures amid rising mortgage rates. They will hold back new launches and land acquisitions. HDB homebuyers see higher cash downpayment and lower loan-to-value. They will hold back their purchase. Private home owners see 15-month’s wait if they sell and move to an HDB flat. They will hold back the sale of their home. Potential renters see rents are high and will go higher. They will hold back their plan to rent.

If everybody is holding back, property agents close no deal and make no commission.

In other countries, when the market direction changes, real estate brokers will warn their clients that prices are going to drop. Sellers will panic, offer discount to buyers and let agents close the deal. Unfortunately, in Singapore the one and only advice from property agencies is “the market is resilient and prices are unlikely to fall”. As a result, the market ends up with no launch, no discount, no sale and no commission.

Food for thought

As I mentioned in my book Behind The Scenes of The Property Market, all players (including industry stakeholders, property buyers and home owners) are at the mercy of policymakers. No industry stakeholder has ever proved to be able to influence the government’s decisions on the introduction or relaxation of property curbs. What’s more, be it land sales, development charges, stamp duties or property taxes, the winner takes it all.

When you invest in any asset, the trend is your friend. When you invest in Singapore properties, the government is your friend. However, this friend can make it difficult for you when you are least expected.

Home purchase is all about affordability and holding power. Think twice before you make any property decision.

If you need advice on property matters or residential properties in Singapore, you can check out my personal consultation service.

My new book Behind The Scenes of The Property Market is now available for preview and order online. You can also check out my online courses.