Quick takes: Will new loan limits, 15-month wait period finally cool property demand?

LATE on Thursday (Sep 29), the Monetary Authority of Singapore (MAS), Ministry of National Development (MND) and Housing Board (HDB) announced a fresh set of cooling measures, tightening limits on housing loans.

They also implemented a new 15-month wait-out period for private property owners (PPO) eyeing HDB resale flats, a move widely expected to slow demand for the downgrading segment.

The move comes as the government looks to ensure prudent borrowing and moderate demand amid a rising interest rate environment. This is to avoid future difficulties in servicing homes, MAS, MND and HDB said in a joint statement.

Here are some quick takes from property analysts on the latest set of cooling measures:

OVERALL EFFECT

CBRE head of research, South-east Asia, Tricia Song:

• “This latest round of cooling measures has a more severe impact on the HDB resale market, in particular the bigger 5-room and executive HDB flats, which could see lower demand from private home downgraders or en bloc sellers, and in turn, prices should also be moderated.”
• “Lower HDB resale prices in turn could also moderate upgraders’ ability and thus demand for private homes, which saw recent new launch prices in the outside central region exceed S$2,000 per square foot (psf), closing the price gap with higher-end segments.”
• “Some HDB sellers who had decoupled from selling their HDB flats at high prices and used these proceeds to buy investment private property would also be impacted.”
• “En bloc sellers may have one less option of alternative accommodation, and this could potentially drive up selling price expectations, which could deter developers further after the recently increased land betterment charges, and ultimately bring down private home supply in the medium to longer term.”

Colliers Singapore director and head of research Catherine He:

• “Apart from cooling the HDB resale market directly, these measures will indirectly cool the private residential market, as it will shrink the pool of HDB upgraders profiting from higher HDB prices.”
• “Therefore, mass market projects could be most impacted, as this segment is most dependent on upgraders. Cash-rich buyers such as high-net-worth individuals will be less affected as they require less leverage.”
• “Non-residential properties likely to be most affected by the latest measures would be commercial properties purchased by individuals for investment; these include shophouses, strata office and retail units, and smaller industrial properties.”

ERA Realty Network chief executive Marcus Chu:

• “This round of cooling measures aims to constrict loan financing which is the fuel that powers the growth of the property market.”
• “However, the underlying demand for real estate is still very robust due to various reasons, such as the need to hedge against high inflation.”
• “This round of property curbs will encourage more financial prudence among buyers. This would be positive for the property market in the medium to longer term as it would minimise financial risks from rising interest rates.”

PropNex Realty head of research and content Wong Siew Ying:

SEE ALSO

Housing loan limits – including for HDB loans – tightened in fresh measures to cool property market

Families to have priority for new prime location HDB flats, to keep flats affordable

• “Observations suggest that some of the million-dollar flat buyers have sold their private home and downgraded to such flats; flushed with cash from the sale of their private property, such buyers have the ability to pay higher price for the resale flat as well as cash-over-valuation.”
• “To some extent, this will help to level the playing field for other buyers of HDB resale flats, as they may not have quite as big a war chest compared to the cash-rich downgraders who have sold their private home.”

Cushman & Wakefield Singapore head of research Wong Xian Yang

• “In all, the new measures increase market friction and should slow resale HDB price growth.”
• “However, given the resilient underlying housing demand, low unemployment rates and an anticipated shift in demand from the private market, HDB price growth could still remain positive in Q4 2022, albeit at a much slower pace as compared to previous quarters.”
• “For the private property market, the recent loan curbs add to the overhang of cooling measures and economic uncertainty.”
• “With reduced affordability, housing demand for private properties is expected to be reduced leading to a slowdown in price growth.”
• “Also, HDB upgrader demand may fall as HDB resale price growth slows. The market may see a knee-jerk reaction in Q4 2022, as the market assesses the impact of the measures amidst the prospects of an economic slowdown.”

HIGHER MEDIUM-TERM INTEREST RATE FLOOR TO COMPUTE TDSR AND MSR

MAS will raise, by 0.5 percentage point, the medium-term interest rate floor used to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for residential and non-residential property. This will apply across all property loans, not just home loans.

For housing loans granted by HDB, HDB will introduce an interest rate floor of 3 per cent – or 0.5 percentage point above the prevailing CPF Ordinary Account interest rate – for computing the eligible loan amount. The actual HDB concessionary interest rate will remain unchanged at 2.6 per cent per annum.

Additionally, the Loan-to-Value (LTV) limit for HDB housing loans will also be cut to 80 per cent from 85 per cent.

Edmund Tie head of research and consulting Lam Chern Woon:

• “The calibration of the medium-term stress test interest rate is widely expected, as mortgage rates have already exceeded 3 per cent in recent months and are likely to exceed the pre-measure stress test rate of 3.5 per cent going into 2023, vanquishing any meaningful buffer to safeguard borrowers’ ability to service property loans in a rising rate environment.”
• “For the private property market where S$2 million home price quantums are increasingly common, even in the suburban segment, affordability will undoubtedly be impacted. The upshot is that property hunters would have to adjust their budgets accordingly.”

CBRE head of research, South-east Asia, Tricia Song:

• “The increase in the interest rate floor for TDSR is widely expected and not a surprise as interest rates have been rising and most fixed-rate mortgage packages have exceeded 3 per cent.”
• “Based on our calculations, assuming a 20 and 30-year loan term, a 0.5 percentage point increase of interest rate floor for TDSR will reduce the maximum allowable loan and property price by 4.3 per cent and 5.9 per cent respectively, regardless of LTV levels and income.”

Colliers Singapore director and head of research Catherine He:

• “As wages are sticky and unlikely to be adjusted quickly, the adjustment in medium-term interest rate floor - to compute TDSR and MSR by 0.5 percentage point to 4 per cent and 5 per cent per annum for residential and non-residential - could price many buyers out of the market.”

OrangeTee & Tie senior vice-president of research and analytics Christine Sun:

• “The adjustment of the MSR will have an impact on buyers’ housing affordability. With more stringent TDSR and MSR, buyers will have to pay more cash as they can take fewer loans.”
• “This will have a knock-on effect on moderating housing demand and the pace of price growth. The amount of cash-over-valuation that buyers can offer may also drop. Homeowners, especially those living in large flats, may face more headwinds selling their flats in the near term.”

Knight Frank Singapore head of research Leonard Tay:

• “While this shrinking of how much debt for HDB purchases will result in certain HDB buyers falling to the sidelines, it is expected that the majority of HDB homebuyers purchasing for their own occupation will not be affected.”
• “This is due to housing grants for first-timers and lower-income households, as well as those selling their existing homes and using the proceeds to make a subsequent HDB purchase, although it might affect their choice of flat type and location.”

PropNex Realty chief executive Ismail Gafoor:

• “The 0.5 percentage point increase in the medium-term interest rate may potentially weigh heavier on the sale of new executive condominiums (EC) as EC buyers are subjected to a stricter MSR of 30 per cent, as opposed to 55 per cent for private home buyers under the TDSR.”

15-MONTH WAITING PERIOD

The government will impose a wait-out period of 15 months for private residential property owners and former private property owners to buy a non-subsidised HDB resale flat.

At present, private property owners are able to buy a non-subsidised HDB resale flat on the open market, provided they sell their private properties within 6 months of the HDB flat purchase. This will no longer be allowed.

The wait-out period will however not apply to seniors aged 55 and above who are moving from their private property to a 4-room or smaller resale flat.

OrangeTee & Tie senior vice-president of research and analytics Christine Sun:

• “This move may cool the market for a while and slow down the pace of price increase for these bigger flats to a certain extent and allow younger couples a better chance of securing these units with lesser competition.”
• “Overall price growth may moderate which will also help first-timers to have a better chance of buying resale flats if they cannot wait for the long completion period for some Build-to-Order flats.”
• “By imposing the new ruling, some of these buyers who do not wish to wait so long will likely turn back to the private market or purchase smaller resale flats. This may drive up demand for the private resale market.”
• “Private homeowners who still wish to purchase a unit may need to rent a unit in the interim. The increased rental demand may push current rental prices even higher.”

Knight Frank Singapore head of research Leonard Tay:

• “Downgraders from private homes, which could comprise retirees, would now have to source for alternative accommodation before being able to buy a non-subsidised HDB resale flat. This group would likely either rent or stay with relatives or friends.
• For those who might not have other options than to rent, this would push more demand into the leasing market, putting more upward pressure on rental values (in both the private and HDB market) that have been increasing substantially throughout 2022.
• The newly announced wait-out period does not apply to the purchase of HDB 4-room or smaller resale flats. This might trigger a rise in the values of HDB 4-room resale flats, especially as many of these can be found in mature estates with good locations, walking distance to MRT stations and were built in earlier years when the size of HDB 4-room units was larger at 100 square metres to 110 square metres.

Edmund Tie head of research and consulting Lam Chern Woon:

• The 15-month wait-out period effectively removes a chunk of the downgrading segment, but the effective impact may be ameliorated somewhat by the fact that seniors aged 55 and above downgrading to 4-room or smaller resale flats are exempted from the wait-out period.

CBRE head of research, South-east Asia, Tricia Song:

• We believe the 15-month wait-out period may actually support the rental market for both private and public housing markets, particularly as more completions are coming through in 2023.
• As of Q2 2022, 17,394 private homes are due to be completed in 2023, the highest number of completions in a single year since 2016. Residential rents are at a record-high now and with this announcement, may continue to move up and remain elevated into 2023.

ERA Realty head of research and consultancy Nicholas Mak:

• “Some private residential property owners would be reluctant to sell their private properties to move into HDB flats.”
• “These private property owners include empty-nesters, couples whose children have moved out of their homes and the couples who wish to move to a smaller property, and property owners who wish to move to a cheaper home due to financial reasons.”
• “However, they could move to other private residential properties without waiting 15 months. Hence, this could increase the sales volume in the resale market.”

Huttons Asia senior director (research) Lee Sze Teck:

• PPOs will now need to sell off their private property and wait 15 months before they can buy an HDB resale flat. This effectively cuts off the demand from PPOs and ex-PPOs. But this is a temporary measure.
• It may be reinstated back to the old policy once the attention-grabbing million-dollar flat situation has cooled. Because the transaction volume for million-dollar flats is not large, the impact on volume is minimal.