Measures Check Hdb Resale Market Running Out Line Economic Fundamentals
The Housing and Development Board (HDB) has recently announced that the loan-to-value (LTV) limit for HDB housing loans will be lowered from 80% to 75%, effective August 20th. This brings the limit in line with loans granted by financial institutions, which remain at 75%.
The latest measure is the fourth round of property cooling measures targeted at the HDB market since December 2021 and the third adjustment to the HDB LTV ratio. In December 2021, the HDB LTV ratio was adjusted from 90% to 85%, followed by another decrease to 80% in September 2022, and now to 75% on August 20th.
According to Desmond Lee, Minister for National Development, these measures were introduced in response to sustained broad-based demand from all buyer groups, including young couples, second-timers, and single individuals looking to own their own flat. Lee emphasized the need to ensure prudent borrowing and stable market dynamics, which can cause a bubble if left unchecked.
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Over the past three years, the reductions in the LTV limit and cooling measures have moderated resale price growth from 10.4% in 2022 to 4.9% in 2023. Mohan Sandrasegeran, head of research and data analytics at SRI, believes this reflects the effectiveness of such measures in stabilizing the market.
The number of million-dollar HDB resale transactions has hit an all-time high of 124 in July, according to EdgeProp Singapore research. This is up from only 82 in 2020. Eugene Lim, key executive officer of ERA Singapore, notes that this is the most crucial metric to monitor.
Lim adds that the cooling measures introduced in September 2022 did little to dampen demand, as an average of 112 million-dollar flats were sold quarterly between 3Q2022 and 4Q2023. The figure spiked to 183 in 1Q2024 coinciding with the first batch of private property owners completing their 15-month wait-out period, followed by 236 in 2Q2024.
Minister Lee, however, assures that the majority of HDB home loans will not be affected by the latest measures, as almost nine in 10 buyers with HDB loans already borrow at LTV ratios of 75% or less.
The reduced LTV ratio will mean that HDB home buyers will have to fork out a higher downpayment. Ismail Gafoor, CEO of PropNex, believes this could potentially help to cool the top-end of the HDB resale market, as buyers will not be able to borrow as much as before. However, Gafoor suspects the new cooling measures may not capture higher-income buyers, who may continue to pay a higher price for the flat they desire.
Meanwhile, for many low- to middle-income households, the difference in downpayment would likely be offset by the Enhanced CPF Housing Grant (EHG), which was raised as part of the measures announced on August 19th. According to the Ministry of National Development (MND), the EHG is a means-tested grant that supports lower-to-middle-income households buying new or resale flats as their first home. The grant can be used to pay for their property’s downpayment.
Under HDB’s new loan structure, aspiring homeowners seeking to buy a two-room HDB resale flat at $336,000 (the average transacted price so far this year) would need a minimum household income of $3,900. This is after considering a mortgage servicing ratio (MSR) of 30%, HDB’s interest rate of 2.6% over a 25-year loan period, and no other external sources of financing.
The new LTV ratio will increase the downpayment by an additional $16,800. However, under the new EHG matrix, they would receive $25,000 more in grants — an increase from $55,000 to $80,000 — offsetting the upfront financial burden.
However, it is the opposite for the pricier HDB resale units. The average cost of a four-room HDB resale unit in 2024 is $616,000, and it requires a minimum monthly household income of $7,000 to service the loan. The new LTV ratio will increase the downpayment by $30,800. At this income bracket, the EHG amount only increases by $5,000, resulting in a shortfall of $25,800 in additional funds needed upfront.
Christine Sun, chief researcher and strategist at OrangeTee Group, believes the latest cooling measure aims to temporarily slow down price increases and curb the million-dollar price tags on resale flats. She noted that the measures were carefully calibrated to minimize the impact on those needing financial assistance, lower-income groups, and eligible first-time buyers, who will still receive more help in the form of EHG.
Under HDB’s new loan structure, aspiring homeowners seeking to buy a two-room HDB resale flat at $336,000 would need a minimum household income of $3,900. They will receive $25,000 more in grants, which offsets the increased downpayment due to the new LTV ratio of 75%. Conversely, for pricier HDB resale units, the average cost of a four-room flat is $616,000, requiring a household income of $7,000. The increased downpayment of $30,800 due to the new LTV ratio will not be fully offset by the $5,000 increase in EHG, meaning an additional $25,800 will be needed upfront.