Singapore, 30 Oct 2022 SINGAPORE - The latest round of property cooling measures that are directed at Housing Board flats is likely to cause a more significant knee-jerk reaction because many curbs have been implemented simultaneously. The changes will impact almost all flat buyers, including Build-To-Order (BTO) flat purchasers.
The measures include lowering the loan-to-value (LTV) limits for borrowers taking HDB loans, and increasing the interest rate floor to 3 per cent per annum or 0.1 percentage point above the prevailing Central Provident Fund Ordinary Account interest rate when calculating the eligible loan amount from HDB.
This means home buyers will be able to borrow less from the HDB under the new ruling.
For private loans, the medium-term interest rate floor used to compute the total debt servicing ratio (TDSR) and mortgage servicing ratio (MSR) will be raised to 4 per cent.
With a more stringent TDSR and MSR, buyers will now have to come up with more cash, and this may result in more buyers opting for cheaper flats. This will have a knock-on effect of moderating housing affordability, lowering home demand and slowing the price growth of HDB resale flats.
Private home owners that are downgrading to HDB resale flats must observe a 15-month wait-out period. The rule does not apply to those aged 55 and above purchasing four-room or smaller flats. This measure aims to reduce competition from such buyers, who may be able to pay increasingly high prices for resale flats, and allow first-time buyers to get a share of the subsidised public flats.
These measures will indirectly cool the private housing market, as the pool of HDB upgraders profiting from high HDB resale prices will shrink. Similarly, fewer resale condos and landed properties will go on sale if their owners stop deciding to move to HDB flats.
First-timers purchasing resale flats
HDB data shows that the number of applicants for BTO flats has climbed significantly, from 17,091 during the sales launch in February 2021 to 39,136 in August 2022. Although the number of new flats has increased from 3,740 to 4,993 over the same period, the number of unsuccessful applicants surged from 13,351 to 34,143. Many of these unsuccessful applicants will likely turn to the secondary market.
The cooling measures will level the playing field for cash-strapped buyers. Young Singaporeans will have a better chance of securing their first homes in the resale market since there is less competition from private home owners and prices of flats are likely to stabilise soon. Generous subsidies are also available for first-time buyers and low-income Singaporeans.
Young couples buying bigger resale flats
After the announcement of the measures, our agents noticed a surge in housing inquiries from young Singaporeans looking for five-room and executive units. There is strong demand for big flats, especially in mature estates. Fewer big flats have been sold in the BTO market in recent years.
For example, the number of newly launched five-room and three-generation BTO flats in mature estates dipped from 1,911 units in 2017 to 1,204 units in 2021. Only 489 of such new flats were sold in the first three launches this year. Due to the lack of new supply and strong demand for big flats, the median price of five-room flats in the mature estates surged to $710,000 in January-September 2022 from about $670,000 in 2021.
Second-timers upgrading to resale flats
Many second-timers are applying for flats in the BTO market. These people are keen to upgrade as their families have expanded, or they wish to stay with their elderly parents.
Due to the adjustments made to the BTO allocation giving first-timers more priority to secure their first homes, including those applying for non-mature estates, second-time applicants have a slimmer chance of snagging a new flat from the BTO market. Under the current rules, only 5 per cent of four-room and larger flats are available for second-time applicants.
As a result, there was an overload of second-timers applying for BTO flats in recent launches. For instance, the four-room PLH (prime location public housing) model flats at Alexandra Vale and Havelock Hillside during the August 2022 BTO sales launch were oversubscribed by 53 times, with more than 3,300 second-timers vying for about 65 units. Similarly, more than 2,800 second-timers applied for 61 four-room PLH model flats at Bukit Merah Ridge in May 2022.
If prices of big resale flats stabilise or moderate in the coming months, we may expect more HDB upgraders to turn to the secondary market, especially in the city fringes or near the downtown core.
Home owners who need to downgrade
Some private home owners will still need to buy a new home for genuine reasons, such as cashing out their properties for retirement funds. Others include investors who bought small condos when they were single and need a bigger home to start a family, collective sale sellers looking for replacement homes, and desperate sellers who are in financial difficulty.
Given the 15-month wait-out period, some private home owners who do not want to wait so long will likely look for cheaper resale condos in the suburbs or smaller condos in the city fringe. Seniors exempted from the new rules may drive up demand and prices of four-room resale flats.
Wealthy buyers and foreign investors
The TDSR tightening may not significantly impact the private residential market, especially the luxury segment. The interest rate computation from 3.5 per cent to 4 per cent is not considered a big adjustment. The change was also widely expected, since the stress-test interest rate will likely be breached as mortgage rates surge relentlessly.
Buyers in the top wealth bracket may not be affected by the loan tightening. They have sufficient capital to fund their property purchases or can redeploy funds from other investment avenues to pay their home loans. Foreign investors may continue to buy properties here as they consider our mortgage rates to be lower than in other countries and our strong Singapore dollar can help preserve the value of their investment.
Moving forward
The rapidly climbing interest rates, increased geopolitical tensions and recessionary risks worldwide have caused investors to lose confidence in equities and riskier assets. Properties here are still widely regarded as safe-haven assets or a hedge against inflation. Past trends indicate that our property market is highly resilient and usually rebounds within six months of a cooling measure. Some astute buyers will seize the opportunity to snag a unit when the market takes a breather. Fundamentals like our strong household balance sheets, tight domestic labour market and sustained income growth will continue to prop up housing demand.
The writer is the senior vice-president of OrangeTee & Tie Research & Analytics.