Property Cooling Measures (Sept 2022)

As HDB resale prices continue to trend upward with more COV recorded and higher occurence of resale flats crossing the one million dollar mark, the government decided to intervene by introducing new property cooling measures on 30 Sept 2022. This article will explain the reasons behind this decision and its impact.

========================

     Table of Content

• 4 Key Market Challenges
• The Dual Approach
• Impact on Property Market

========================

📌4 Key Market Challenges

• In the first 9 months of 2022, we have seen a 7.8% increase in HDB resale prices
• HDB resale flats prices have also increased for 10 consecutive quarters
• This reflects a strong, broad-based demand for public housing
• On 30 Sept 2022, new property cooling measures were introduced to tackle the 4 key market challenges: (1) Escalating HDB Resale Prices (2) COV Transactions (3) Million-Dollar HDB resale Flats (4) Rising Interest Rates
• These new measures aim to promote sustainable conditions in the property market, especially HDB resale prices

This upward trend is driven mainly by 3 factors

1. Increase in number of marriages
2. Smaller average household sizes
3. More Buyers turning to resale market due to COVID-19 related disruptions to BTO construction work

📌The Dual Approach

The government adopted the “Dual Approach” property cooling measures to tame the market:

(1) Slow Down the Buying Demand

(2) Ensure Prudent Borrowing

📌Dual Approach #1:

Slow Down the Buying Demand

To slow down the buying demand for HDB flats, a new “15 months wait-out period” for private property owners will take effect from 30 September 2022

15 months Wait-Out Period

• Private property owners who want to downgrade to resale HDB flats will have to wait 15 months after selling their private property.
• This is to moderate demand for resale HDB flats and to keep them affordable.
• This measure will not apply to seniors aged 55 and above who are moving to a 4-room or smaller resale flat. 

📌Dual Approach #2:

Ensure Prudent Borrowing

Mortgage rates in Singapore have increased signifcantly in past months and are likely to increase further, which will affect borrowing costs

To avoid future difficulties in servicing home loans, the government lower the Loan-to-Value (LTV) limit for HDB housing loans

Lower Loan-to-Value Limit (HDB Loans)

• The loan-to-value limit for HDB loans has been lowered from 85% to 80%
• This means buyers will have to fork out more cash for downpayment.
• This revised loan to-value limit does not apply to loans granted by private financial institutions, which is at 75%.

Interest Rate Floor Raised to 3% (HDB Loans)

• There will be an introduction of an interest floor rate of 3% for computing the eligible loan amount for all HDB loans
• The current HDB interest rate of 2.6% per annum is not affected at this time

Illustration Example: HDB Flats Using HDB Loans

Interest Rate Floor Raised to 4% (Bank Loans)

Interest rate floor for property loans from banks will be raised to 4%, which will reduce the maxium loan amount for many buyers

Illustration Example: HDB Flats Using Bank Loans

📌 Impact on Property Market

On HDB Resale Flats & New EC

• This round of property cooling measures is one of the most significant because it affects most home buyers, including aspiring BTO flat applicants
• The larger-sized HDB flats and potential “million-dollar flats” will bear the brunt
• We will see less of the latter as most of them were purchased by private property down-graders who had deeper pockets from the sale of their private property
• Borrowing to buy the bigger new EC units will be affected as the loan quantum approved will be lesser
• The 15 months wait out period will prop up the rental market as downgraders are being forced to rent

On Private Property Market

• Private property down-graders are those who will be the most affected by the 15-month wait-out period.
• Those who do not want to rent may have to purchase smaller private properties instead, which may actually boost the private property market for smaller units.
• With this latest round of property cooling measures, more caution and prudence are expected in the private property market because the rate used for computing TDSR is raised from 3.5% to 4% (i.e. reducing borrower’s maximum loan amount)
• However, this will have little impact on the luxury and high-end markets

An Illustration Example: Bank Loans for Private Properties

Like this “Property Cooling Measures”Article?

See more articles (videos) here