Last friday, the latest cooling measure 7 was announced and was expected to take effect the next day. It is not unexpected as property prices in Singapore continues to rise despite the previous 6 attempts by the Government to cool off the market. In this latest update, the usual cooling measures was further tightened including:

• increasing the additional buyer stamp duty (ABSD) by 5-7%, depending on whether you are a first, second or third time buyer and whether you are a PR or Singaporean
• tightening of loan to market value at 50% or less for second and third time property buyer respectively
• tightening of borrowing criteria for HDB loan takers
• preventing full rental of HDB by PRs
• forced selling of your HDB if you purchase a private property for PRs

In effect, the government is trying to reduce the credit that is available in the market so that only people with cash can participate. This will leave many middle class folks like me out of the game. Let’s work with some numbers to get a sense of how much cash you will need if you want to buy a second private property in Singapore as a form of investment.

Here is how much cash I need before and after CM7 for a $0.5M mickey mouse condo unit in District 9:

Before CM7
Downpayment = 40%*0.5M = 200k
Buyer stamp duty = 3% * 0.5M = 15k
Additional buyer stamp duty = 3% (this will be 0% if you are a Singaporean) *0.5M = 15k
Total cash needed = 230k

After CM7
Downpayment = 50%*0.5M = 250k
Buyer stamp duty = 3%*0.5M = 15k
Additional buyer stamp duty = 10% (this will be 7% if you are a Singaporean) * 0.5M = 50k
Total cash needed = 315k

For a 500k condo, I now need to folk out another 85k cash if I want to buy it as a second property. Is 85k cash a lot? To the middle cash folks like me, probably yes as I need to save up for a few years before being able to cough up that amount. Hence, there is no denying that property buying as means to build wealth will no longer be a viable option for us in the middle class.

Will Singapore property prices crash in 2013

My personal view is that price might be stagnant or slightly reduced with the new CM7 in force. To have a property crash, 2 things need to happen. First, interest rates need to go up such that the monthly mortgage will increase significantly. Second, economy starts to weaken such that unemployment is increasing. These 2 factors combine will drastically reduce the holding power of many property owners as most cannot maintain a negative cash flow asset for long. If these 2 things don’t happen, property prices will not go through a drastic correction.

How to buy a new property if you already have an existing one?

With CM7, the ability to finance a second home has become increasing difficult, especially to those who are not cash rich. For those seeking to buy a new property, the best option is to sell off your existing place before being able to commit to a new one. If your new condo is not ready, then finding a place to live while waiting for TOP becomes an issue.

How to invest in 2013?

Overall, I think this is a good measure to prevent prices from spiraling uncontrollably upwards. As small time investors, it is time then to look for other avenues to grow our wealth. Fortunately, the Internet has always been my weapon of choice due to the low cost and high potential returns.