5 things every on-the-fence homebuyer must do if new cooling measures are suddenly announced

While one could argue that there’s really nothing ‘cool’ about the property cooling measures in Singapore, there is no disputing that the implementation of stricter rules in the future are a certainty.

When the government decides to implement cooling measures, it takes effect immediately. This gives little time for speculators to make their move, as seen on July 5, 2018 when new measures were announced, which sparked off a wave of buying frenzy nationwide.

Undecided homebuyers turned into confirmed, die-die must-buy homeowners overnight. Property agents and buyers stood in line for hours at showflats in hopes of snagging a unit before the new measures kicked in at midnight.

What are cooling measures?

Property cooling measures are government regulations designed to restrict both supply and demand of property as well as to discourage speculation on the property market.

According to former Minister for National Development Lawrence Wong, “Our aim is not to bring prices down. Our aim is to steady the property cycle … and have a sustained property market where prices move broadly in line with income growth or fundamentals.”

Here are five things to keep to in mind so you won’t get caught off guard in the event the government springs another surprising round of cooling measures.

1. Plan your finances

To avoid getting iced out by property cooling measures, you need to have a clear overview of your current finances. This is especially important in the face of new restrictions as it could drastically affect your affordability.

For example, if the government decides to tighten the Loan-To-Value (LTV) ratio, you will likely have to cough up a bigger downpayment as the amount you’re allowed to borrow would be reduced.

If you currently own a property, be prepared to be hit with Additional Buyer’s Stamp Duty (ABSD). The last round was introduced on July 6, 2018, which increased the ABSD rate from 7 per cent to 12 per cent for Singaporean individuals.

If you were eyeing that second condo with a price tag of $1,000,000, you would have to pay an ABSD of $120,000, on top of the initial Buyer’s Stamp Duty (BSD) fee.

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2. Reduce outstanding expenses

Another important part of financial planning would be to reduce outstanding debts such as credit card debt, student loans, car loans and existing mortgages that would eat into your Total Debt Servicing Ratio (TDSR). Introduced in 2013, this regulation reduces the risk of individuals being over-leveraged when taking on additional debt.

Currently, the TDSR is fixed at 60 per cent of your gross monthly income. This means that if you earn $5,000 per month, your total monthly loan repayments would be capped at $3,000.

If you already shoulder a host of debt obligations, you might be hit with the TDSR threshold which lowers the total loan amount financial institutions can extend to you.

Taking steps to preemptively reduce your debts will maximise the housing loan you can take in the event of a cooling measure.

3. Get an In-Principle Loan Approval

An In-Principle Approval (IPA) is essentially a commitment by a bank that assures you a loan for a specific amount and tenure if you decide to proceed with your property purchase.

What this means is that if you qualify for an IPA loan of $1,000,000 and you have $400,000 in cash and/or CPF, you’re eligible to purchase a property valued at $1.4 million. Once you have this figure in mind, you can narrow your search to properties that fall within your budget.

The validity of the IPA is usually only valid for 30 days, depending on which bank you decide to go with. You need it in hand to ensure you secure your option-to-purchase (OTP).

It’s okay to be a little ‘kiasu’ in securing your IPA early – the worst case scenario is jumping the gun on a purchase decision, only to later realise you have trouble affording the property and being forced to forfeit your option fee.

ALSO READ: 5 tips for homeowners for the 2021 housing market

4. Get professional help

Instead of trying to figure it all out on your own, spare yourself the headache and hassle by getting a reputable property agent to help you create a custom analysis for your specific situation and provide advice to help you make the best decision. The best part is that it is non-obligatory and is completely free of charge.

All these fancy acronyms will make or break your decision, which brings us to our next point if you’re looking for a more straightforward, affordable option.

5. Consider buying HDB resale instead?

While this isn’t exactly a must-do, it’s worth having this as an option. Arguably, a majority of cooling measures have little to no effect on HDBs, due to the reason that HDBs are designed for owner-occupation and not investment or speculation. So if you’ve only been doing research on condos, you may want to also widen your possible options to include HDB resale apartments.

One reason for this is you may be eligible for an HDB loan instead of a bank loan, which allows you to pay a much lower upfront downpayment.

The one thing to consider is the Mortgage Servicing Ratio (MSR), which caps your maximum home loan repayment to 30 per cent of your monthly income. This differs from the TDSR, which looks at the entirety of your loan obligations, such as car and student loans.

ALSO READ: A first-time homebuyer's journey: My personal review of Windermere EC

Making a decision

As you can tell from the list above, most of the preparedness comes from being financially ready. Other housekeeping matters include making sure you have all of your documents filed and ready to go if you need to jump into a queue overnight (if it ever comes to that).

Still, the old adage of: “Good things come to those who wait” might not work in your favour if you’re a homebuyer undecided about pulling the trigger on a property.

Mindset-wise, timing the property market for better value (ie. waiting for prices to drop) is akin to timing the stock market – unpredictable at best, and more so if you’re trying to forecast if and when the government might announce new cooling measures.

Making a decision, or at least being prepared, before letting the government dictate your property-ownership fate is better than hemming and hawing over cooling measures that may or may not happen. At least, the decision-making tension’s over and you and your family can then move on to the next best thing: renovations-planning and moving in.

This article was first published in 99.co.