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Exploring The Myth Of First Time Home Buyers Driving Up Mass Market Sales
I nearly fell off my office chair when I saw the figures for new private home sales in March. We all know that it is going to be a strong figure with so many launches taking off in the month, but the muscle that comes with 2,793 units transacted is astonishing. This despite the multiple cooling measures being introduced including the mother of all cooling measures earlier in January.
Who are the people buying these properties?
To absorb how miraculous these sales figures are, let’s just do a small recap of the major cooling measures implemented to supposedly “cool off” the boiling property market in Singapore.
Sellers stamp duty (SSD) was introduced in early 2011 as it was agreed that sub-sales speculators are driving up property prices without any intention whatsoever to actually live in the apartments they bought. New launches were just like a product they import at cost price and sell to buyers at retail price. At the same time, loan-to-value (LTV) for a second mortgage was capped at 60%. At that point in time, these measures were deemed as the end of the road for runaway prices.
Additional buyers stamp duty (ABSD). As it was being perceived that foreigners and permanent residents (PR) are driving up prices of properties, ABSD was introduced to halt the march towards unattainable property prices. Foreigners will incur ABSD on their first properties. And to discourage permanent residents and citizens to own multiple properties, PRs will incur ABSD on their second properties and citizens on their third onwards. This was when prices are finally expected to settle down and a correction seemed predictable.
In the third quarter of 2012, mortgage LTVs are being scrutinized again as this time the age of a borrower which determines the maximum loan tenor will play a big part in determining the maximum LTV a buyer can be eligible for. LTV for second mortgages also went down. This was a clear indication that second home buyers are being targeted. You would think that at this time, very few people would be able to buy a second property even if a gun was held to his head.
And then came the BIG one. The government felt that enough was enough and implemented the mother of all cooling measures in January 2013. This was the day the earth stood still for wannabe property investors.
Surely this is the end of the growing monster that is property price?
We can all see now that the answer is a big fat “NO”! There appears to be “genuine first time home buyers” who are queuing up on launch dates to snag a good number for a chance to buy “choice” units and they will buy second choice or third choice when they miss out the first choice. They apparently form a huge portion of the sales figures. So who exactly are these first time home buyers?
Let’s take a look at new HDB numbers before we get to the meaty stuff.
HDB launched 34,237 new flats in 2012. And 7,241 so far in 2013 as seen here and here. First timers are usually given an allocation of 85% to 95% of these flats. We have not even mentioned the roughly 25,000 in 2011. On top of that, I’ve omitted resale HDB flats. If we take an income ceiling of $10,000, those on high end income who are eligible for new HDB flats can easily afford mass market condominiums at prices anywhere between $500k to $1.25m. Take note that a household with $10,000 monthly income can generally afford to take up a loan of up to $1m give or take if we follow the table here.
Where are these “genuine first time home buyers” coming from?
For the layman, a first time home buyer is simply a household buying a home for the first time and will be housing a family in it. Renting it out for rental income is not even an option. Just the mention of it will be met with piercing stares from family members. Whether they pay $400k for a big BTO or $1.25m for a mass market condominium at $1,500psf is really none of our business.
Being a first time home buyer in Singapore has several benefits. Let’s not talk about HDB. But when you are buying a private property for the first time, you will be eligible for 80% LTV if your income can support it. Your cash portion will also be at a minimum. Singapore citizens will not incur ABSD, while PRs will incur minimal ABSD. These are the main attractive points.
So it is no wonder anyone who wants to buy property wants to be classified into the “first time home buyer” category. But when rules are clearly written, it also shows where are the paths to avoid the mines. These are not bending the rules, mind you. These are navigating around them.
There are some circumstances where you can get into the category of “first time home buyer” when you are clearly not one to a layman. Some of these are.
Couples who buy 1 property each under their individual names with the full intention to live together in one and rent out the other. They are legally getting around the system meant to slap some sense into property prices. In some instances, they can even transfer ownership and the mortgage of their existing house to just one party’s name, freeing up the other party to become a “first time home buyer”.
Multifamily households who pile up their cash reserves to buy a mega house under a family member’s name who is a first timer. The households can then live together in the mega apartment and rent out their other 3 properties.
Owners of fully paid up HDB flats who can now buy private properties at 80% LTV without having to sell off the existing HDB flat. They will however be liable for ABSD. Need a clue on how to get around this? I’m sure you already know if you read so far. They will then rent out one of their 2 properties. Are these really first time home buyers? Not to a layman.
These are just some examples. With real estate being hot assets for wealth accumulation, it is no wonder home owners and investors are pulling out all stops to qualify as a “first time home buyer”. With every cooling measure, there seems to be a counter effect that comes with the intended effect. There could be an element of scarcity being created. This fear of a second or third property being unaffordable can motivate home owners to buy now before more measures are implemented that completely handicaps them. I can only hope buyers have practiced pragmatism when making these purchase decisions instead of just queuing up because there is a long queue.