About 10% of buyers with HDB loan may be affected by new measures to cool market
This group of buyers is ‘not insignificant’, forking out a median of S$20,000 to S$60,000 more than other flat buyers
AROUND one in 10 homebuyers with a loan from the Housing and Development Board (HDB) borrow 75 per cent or more of their flat price in their home purchase – and this group of buyers is more likely to be affected by the government’s latest measures to tame the resale market.
The loan-to-value (LTV) ratio for HDB loans was cut from 80 per cent to 75 per cent, in line with those granted by financial institutions, in a move announced on Monday night (Aug 19).
In a media briefing on Tuesday (Aug 20), Minister for National Development Desmond Lee said the authorities have observed that buyers who take loans at higher LTV ratios disproportionately buy larger flats and pay higher prices.
This group of buyers is “not insignificant” – the median resale buyer forks out around S$20,000 to S$60,000 more than other buyers with LTV ratios of 75 per cent and below, depending on flat type, and this drives up the overall resale market, he said.
Based on latest government data, resale prices rose 4.2 per cent in the first half of 2024 – just a notch lower than the 4.9 per cent increase in the whole of 2023. Since the second quarter of 2020, resale prices have surged by 42.5 per cent, indicated ERA Realty data.
News of more public housing flats changing hands at over S$1 million in recent months have also raised eyebrows. In the first seven months of 2024, there were 539 million-dollar transactions, of which 13 deals were at least S$1.5 million, Eugene Lim, key executive officer of ERA Singapore, pointed out. In comparison, there were just 82 of such transactions in the whole of 2020.
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At Tuesday’s briefing, Lee said that the lower LTV limit is meant to encourage more prudent borrowing and dampen demand at the higher end of the market – which will, in turn, stabilise the rest of the resale market. He stressed that the number of million-dollar flat transactions is, in actuality, just around 2 per cent of all resale transactions in the last year and a half.
These higher-priced flats are mostly maisonettes, executive apartments, jumbo flats or five-room flats in central locations located on high floors, he said. “The problem is that (these flats making the news) has caused Singaporeans to be concerned about the affordability of resale flats as a whole... If you are not careful, such market dynamics can cause the resale market to run out of line with economic fundamentals and cause a bubble.”
More than a cooling measure
The minister also highlighted that the government’s latest move is “not just a cooling measure”.
“It is prudential,” said Lee. “There is so much uncertainty. We don’t know when interest rates will moderate, we don’t know what the economic conditions are like going forward.”
“History tells us that the property market moves in cycles, and those who buy at higher prices with larger loans are also hardest hit when the market cools,” he said.
That is why the authorities are now moving to dampen demand and encourage prudent borrowing, while injecting supply at a steady pace to meet demand, said Lee.
He emphasised that the vast majority of homebuyers with HDB loans will not be affected by the lowering of the LTV limit. Nine in 10 buyers with HDB loans see a LTV limit of 75 per cent or less.
Lee also noted that the majority of buyers do not pay cost over valuation (COV) when purchasing a resale flat. The COV refers to the difference between the sale price of a resale flat and its actual HDB valuation, and must be paid for in cash.
Of the minority that incurs a COV, buyers pay a median of S$30,000 to S$40,000, and this has been “pretty stable” in the last two years, said Lee.
HDB has also increased the Enhanced CPF Housing Grant (EHG) up to S$120,000, to help first-time buyers from lower to middle-income households mitigate the impact of the lower LTV.
Around 85 per cent of first-time buyers – more than 13,000 households – are expected to benefit from this move each year, with lower-income households receiving the most support, he said.
Limited impact
Nonetheless, some in the real estate trade doubt the effectiveness of these latest measures.
Lee Sze Teck, senior director of data analytics at Huttons Asia, pointed out that most buyers of four-room flats or larger are unlikely to see an increase in housing grants. They may also utilise bank loans for their purchases, in which case there will be no difference for them, he said.
Since there is a smaller supply of four and five-room flats reaching their minimum occupation period this year, prices are likely to continue growing, Huttons’ Lee added.
The top end of the resale market – the million-dollar segment – may not be significantly affected by the tighter financing limits, said OrangeTee Group chief researcher and strategist Christine Sun.
For one thing, these buyers may not even qualify for a HDB loan, she noted. To be eligible for a HDB loan, households must have an average gross monthly income of less than S$14,000.
The Ministry of National Development also shared that just over half or 53 per cent of resale flat buyers took up HDB loans in 2023, up from 38 per cent in 2022. The figure remained at 53 per cent in H1 2024.
“Moreover, they may be able to afford the extra 5 per cent in cash even if they are affected by the reduced LTV,” said Sun.
ERA’s Lim offered an example of a couple with combined CPF savings of S$150,000 looking to buy a five-room flat at a median price of S$680,000. With the lower LTV in place, they would need to top up S$20,000 in cash, a sum which would be “reasonably manageable by most buyers today”, said Lim.
Lim also noted that the jump in million-dollar transactions this year coincided with the first wave of former private homeowners who had completed the mandatory 15-month wait-out period before purchasing an HDB resale flat. This was introduced in September 2022 as part of market cooling measures.
Some resale buyers may not even be borrowing to finance their home purchase, said Lee of Huttons.
This group of higher-income buyers are very likely to have contributed to higher resale prices, said Ismail Gafoor, chief executive at PropNex. “(They) may continue to be able to pay a higher price for the flat that they desire.”
Cushman & Wakefield research head Wong Xian Yang noted that the increased EHG could boost liquidity for some households. This may result in some inflationary pressure for lower-priced and smaller flats in non-mature estates, he said.
On the flip side, Wong said, buyers of higher-priced or larger flats tend to maximise their LTV due to the higher quantum. “The reduction in LTV limits may hence curb price growth for such flats,” he added.
Wong Siew Ying, head of research and content at PropNex, noted that while the larger EHG will “certainly” support first-time homebuyers, there may be an unintended knock-on effect on the HDB resale market.
It may spur resale flat demand as the grant amount could be “quite generous” after including the Proximity Housing Grant of up to S$30,000. “In addition, there is a chance that some resale flat sellers may now hold on to a firm asking price for their flats, as they perceive that buyers are able to enjoy a higher grant,” she said.
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