Here are hypothetical cases to illustrate impact of new property measures

What happens if a 30-yr old first time buyer buys a S$1mn condo?

According to Nomura, unless home buyers have ample capital, mortgage repayment could now be 24-45% higher and thus less attractive for existing home owners to refinance.

Case 1: 30-yr old first time home buyer buys a S$1mn condo

Before 6 Oct 2012:

 Max LTV = 80%, assuming a 40- yr mortgage at a rate of 1.5%pa, equity = S$200k, monthly
mortgage repayment c. S$2,220

With effect from 6 Oct 2012:

Scenario 1: max mortgage tenure of 35-yr at a rate 1.5%pa but LTV capped at 60%, equity = S$400k, monthly mortgage repayment c. S$1,840.

Scenario 2: takes a 30-yr mortgage at a rate of 1.5%pa and LTV of 80%, equity = S$200k, monthly mortgage
repayment c. S$2,760

Remarks: 

Unless the first time home buyer has an additional capital of S$200k, the monthly mortgage repayment w ill now be c. 24% more than previously.

Case 2: Existing home owner who  bought his unit 3 yrs ago for S$1mn at LTV of 80% looking to refinance. Assuming existing mortgage is 40-yr at rate of 1.75%pa, monthly repayment c. S$2,320

Before 6 Oct 2012:

Refinance w ith 40-yr mortgage at a rate of 1.5%pa, monthly  mortgage repayment c. S$2,100.

With effect from 6 Oct 2012:

Max tenure allow ed = 32 yrs, assuming rate of 1.5%pa, monthly mortgage repayment c. S$2,500

Remarks: 

Does not make sense to refinance even though market rate is low er than that of the existing loan.

Case 3: 40-yr old Singapore citizen with an existing mortgage buys a 2nd condo at S$1mn for investment.

Before 6 Oct 2012:

Max LTV = 60%, assuming a 40-  yr mortgage at a rate of 1.5%pa,  equity = S$400k, monthly mortgage repayment c. S$1,660

With effect from 6 Oct 2012:

Scenario 1: max mortgage tenure of 35-yr at a rate of 1.5%pa but LTV capped at 40%, equity = S$600k, monthly mortgage repayment c. S$1,220

Scenario 2: takes a 25-yr mortgage at a rate of 1.5%pa and LTV of 60%, equity = S$400k, monthly mortgage repayment c. S$2,400

Remarks:

Unless the buyer has on hand capital of S$600k, the monthly mortgage repayment is now c. 45% higher than before. Note that for PRs buying a second residential property, ABSD of 3% w ill also apply. 

Case 4: A company buys a S$1mn condo for investment.

Before 6 Oct 2012:

ABSD of 10% applies and max LTV = 50%. Minimum holding period of 4 yrs to avoid SSD. Assuming 40-yr mortgage, 3.5% rental yield and 20% capital appreciation upon disposal at end of 4 yrs, IRR = 7%.

With effect from 6 Oct 2012:

Max LTV = 40% and max. mortgage tenure = 35-yr. All other conditions apply = lower IRR of 6.3%

Case 5: A developer buys a condo plot with GFA = 0.4mn sq ft at S$750psfppr. The project is launched and fully sold 1 yr later at S$1,300psf. The project takes 4 yrs to complete.

Before 6 Oct 2012:

Max LTV = 50%. Assuming cost of borrow ing = 2%, IRR = 7.5%.

With effect from 6 Oct 2012:

Max. LTV = 40%. Assuming cost of borrow ing = 2%, IRR 6.3%.

Remarks:

This calculation assumes that the project is fully sold and completed within 5 yrs. Otherwise, the ABSD of 10% applies.