Written by: Benjienen Toledo | Updated: 24 Jan 2019
The Singapore Government has continued to review conditions in the residential property market. Below are the calibrated adjustments to the Seller’s Stamp Duty (SSD) and Total Debt Servicing Ratio (TDSR) framework, with effect from 11 March 2017.
What is Total Debt Servicing Ratio (TDSR)?
The TDSR framework aims to encourage prudent borrowing by households and strengthen credit underwriting standards by financial institutions. TDSR sets limits on how much a home buyer can borrow. Financial institutions must ensure that borrowers’ monthly repayment for all debts does not exceed 60% of their monthly income. This includes the mortgage, credit card bills, car loans, personal loans, and so on.
The TDSR framework no longer applies to mortgage equity withdrawal loans with loan-to-value ratios of 50 per cent and below. These refer to loans which allow borrowers to use residential properties as collateral to get cash. This change will benefit asset-rich but cash-poor retirees. This aims to encourage prudent borrowing by households and strengthen credit underwriting standards by financial institutions. Under this framework, property loans extended by a financial institution should not exceed a TDSR threshold of 60%.
However, some borrowers have given feedback that the TDSR framework has limited their flexibility to monetise their properties in their retirement years, i.e. to borrow against the value of their properties to obtain additional cash. The Monetary Authority of Singapore (MAS) will therefore relax the rules to meet such needs, MAS will no longer apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50% and below.
What is Seller’s Stamp Duty (SSD)?
Stamp duty is a tax on documents relating to immovable properties such as Private Property Sales & Purchase Agreements, Condo Tenancy Agreements etc. Property owners who sell their homes within the specified holding period – currently 4 years, will have to pay the SSD of between 4% and 16% of the property’s value. The number of property sales within the 4-year window has fallen significantly over the years since this measure was introduced.
Seller’s Stamp Duty Summary
|Particular||Before||After 11 March 2017|
|Holding Period||4 Years||3 Years|
|SSD Rate: 1 Year||16%||12%|
|SSD Rate: 2 Years||12%||8%|
|SSD Rate: 3 Years||8%||4%|
The revised holding period means that properties sold after a holding period of 3 years will not attract SSD. The SSD rate has also been lowered by four percentage points for each tier. For example, currently, the seller of a property held for one year or less will have to pay 16 per cent in SSD. With the change, this will be lowered to 12 per cent.
In Singapore, stamp duty is computed based on the consideration or market value of the relevant asset, whichever is higher. The Inland Revenue Authority of Singapore (IRAS) collect stamp duty from the seller, buyer and tenant; while there are 2 stamp duties imposed on the buyer:
- Buyer’s Stamp Duty (BSD)
- Additional buyer’s stamp duty (ABSD)
What Is Loan to Value (LTV) Limits?
LTV is the housing loan quantum a bank or financial institution is willing to offer as a percentage of the property’s valuation. Measures to lower the Loan-to-Value (LTV) Limit and Raising the Minimum Cash Down Payment on Housing Loans Granted by MAS-Regulated Financial Institutions for the Purchase of Residential Property was also in effect in 2013.
The Monetary Authority of Singapore (MAS) will restrict the tenure of loans granted by financial institutions for the purchase of residential properties. MAS’ move is part of the Government’s broader aim of avoiding a price bubble and fostering long term stability in the property market.
LTV depends on whether this is your first, second or subsequent mortgage and your loan tenure.
LTV Limits Summary
|No Outstanding Residential Property Loan||60% (an absolute limit of 35 years on the tenure of all loans for residential property. This will apply to loans to both individual and non-individual borrowers)|
|Individuals Obtaining a 2nd Housing Loan||50% or 30% (if the tenure exceeds 30 years or the loan period extends beyond the borrower’s retirement age of 65)|
|Individuals obtaining 3rd or subsequent housing loans||40% or 20% if the loan tenure exceeds 30 years or the loan period extends beyond the borrower’s retirement age of 65|
This means that a buyer looking for a second housing loan, and one that extends beyond 30 years or his retirement age (set at 65), can only borrow up to 30% of the value of the property, subject to TDSR.
If the property’s value is $1M, the individual can only borrow up to $300,000; extending it to 30 years means $10,000 / year at $833.33/month. Based on TSDR of 60%, with outstanding credit card bill and car loan monthly repayment of $300, the individual’s monthly salary must not be lower than $2000. Otherwise, he/she can borrow less than $300,000.
Changes in LTV Limits
The new limits will apply to loans for properties where the Option to Purchase is granted on or after Jul 6.
Borrowers will now only be able to borrow up to 55% if the loan tenure is more than 30 years or extends past age 65.
|No Outstanding Residential Property Loan||55% (an absolute limit of 35 years on the tenure of all loans for residential property. This will apply to loans to both individual and non-individual borrowers)|
|Individuals Obtaining a 2nd Housing Loan||45% or 25% (if the tenure exceeds 30 years or the loan period extends beyond the borrower’s retirement age of 65)|
|Individuals obtaining 3rd or subsequent housing loans||35% or 15% if the loan tenure exceeds 30 years or the loan period extends beyond the borrower’s retirement age of 65|
The government has determined that property market measures remain necessary to promote a sustainable residential property market and financial prudence among households.
And in order to maintain a stable and sustainable property market, it would continue to monitor and adjust its policies as necessary.
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