As property prices are increasing even amid the recession, there have been talks about controlling property prices.
Our high homeownership rate in Singapore has always been a pride of the nation.
If property prices are on pace with what they are today, it will be too expensive for new home buyers and to maintain the status quo.
For today’s topic, I will be discussing some of the measures that the Government might take on the HDB owners or future HDB owners to tackle the increase in the property price.
Increase Minimum Occupation Period
The current minimum occupation period (MOP) is 5 years.
The MOP is the period of time that you are required to physically occupy your flat before you can sell it on the open market.
Before 5 March 2010, your MOP could be as short as 12 months.
I am sure you might have heard “tales” where people keep buying and selling houses and make a profit in a short span, causing the property bubble.
However, an extended MOP can be seen as too tough as a five year period is long enough for young families to outgrow their starter home.
Also, given the trend that more couples are marrying later, an extended MOP may not allow them to upgrade their home.
Impose a Capital Gain Tax
Currently, Singapore does not impose any capital gain tax.
We do have Seller Stamp Duty (SSD), which amounts to 0% after the 3rd year of ownership, to discourage flipping.
We can introduce a capital gain tax to discourage the selling of property.
By imposing a capital gain tax, it would deter genuine upgraders to be able to afford a home.
This will also make Singapore a less viable financial hub for foreign investors.
Shortened Mortgage Tenure
The maximum loan tenure for housing loans is capped at:
- 30 years for HDB flats.
However, the Loan-To-Value will be capped at 55% if the loan tenure exceeds 25 years.
Meaning the remaining 45% must be paid upfront either using cash or CPF.
With this rule in place, most of us would be taking a 25 years loan.
The effect of shorter Mortgage Tenure
A couple taking a $400,000 loan for a 4rm in a non-mature estate
- Tenure 30 years would be paying $$1,601.36 a month
- Tenure 25 years would be paying $1,814.68 a month
- Tenure 20 years would be paying $2,139.15 a month
- Tenure 15 years would be paying $2,686.03 a month
The problem with the shortening of loan tenure is that the monthly instalment will become unaffordable for young couples.
Another would be the high monthly instalment will drain out most of the CPF savings, which is mean for our retirement.
Increasing Mortgage Servicing Ratio
Another way is to increase the mortgage servicing ratio (MSR).
Currently, the MSR for HDB is set at 30%.
Based on the illustration above, a couple taking a $400,000 loan will have to pay $1814.68 per month.
With MSR in place, they must earn at least $6047 to be able to qualify for a $400,000 loan.
Increasing the MSR would mean that lower and lower-middle-income families will not be able to afford a right-sized flat in future.
No one size fits all
As you can see, policymaking is a hard and difficult decision to make as there is no one-size-fits-all solution.
Policymakers have to make the right decisions to ensure that HDB flats are kept affordable.
As homeowners, we have to equip ourselves with the latest news and development.
We also have to answer questions and actively participate in providing solutions so that our children can afford a home in future.