On 30 September 2022, the Government implemented an additional set of cooling measures in the property market to ensure prudent borrowing and cool demand amidst rising interest rates.
Tightened Loan Limits and New Wait-Out Period
The latest measures aim to pre-emptively manage the impact of interest rates on the property market and moderate the rise in HDB resale prices. These measures would bolster resilience in the market as interest rates will likely stay on the upward trend with a hawkish US Fed stance. Singapore’s market interest rates are correlated to global economic conditions and interest rates given the city’s open economy and monetary policy.
Broadly, financing criteria for property loans from financial institutions and HDB housing loans have been tightened. The medium-term interest rate floor used to compute the Mortgage Service Ratio (MSR) and Total Debt Servicing Ratio (TDSR) has been increased by 0.5% points across the board for residential and non-residential property (See Appendix 1 for more details). The Loan-to-value ratio for HDB housing loans has also been reduced.
Besides loan curbs, the government is putting in place a wait-out period of 15 months (from disposal of property) for private residential property owners (PPO) or ex-PPO’s who wish to buy an unsubsidised HDB resale flat. This is a temporary measure which will be reviewed.
Strain on Buyer Affordability
Although these fresh measures have implications for both the residential and non-residential property market, we expect the impact on the housing market to be larger with financial institutions being typically more cautious in the non-residential property market.
Based on our assumptions below, buyers across various income buckets would see their affordability (maximum property value that a household can afford) decline by about 6% when they take up bank loans for a residential property (HDB and private). For buyers taking up a loan from HDB, they have to cough up more cash due to lower LTV limits (see appendix 2 for more details).
Given resilient underlying housing demand, the new loan curbs could shift demand towards the more affordable market segments.
For example, some prospective buyers who were previously looking for condos in the city fringe may now set their sights on suburban condos with lower prices. Some first-time buyers in the private property market could towards the HDB resale market. Such movements could accordingly support resale HDB prices and suburban private home prices.
The new wait-out period for PPOs would temporarily deter second-timer demand from the private market to enter the HDB resale market. However, this could further boost the rental demand further as ex-PPO would need to rent while waiting for the wait-out period to end and dispose their property. For those who choose not to wait, they may turn towards the private resale market.
Impact on HDB and Private Residential Market
The new measures should increase market frictions and slow resale HDB price growth. However, given resilient underlying housing demand, low unemployment rates and an anticipated shift in demand from the private property market, HDB resale price growth could remain positive in Q4 2022, albeit at a much slower pace than previous quarters.
For the private property market, the recent loan curbs add to the overhang of cooling measures and economic uncertainties. Demand for private housing is expected to fall and impede price growth amidst dampened affordability and heightened price levels.
HDB upgrader demand would fall due to a slowdown in HDB resale price growth. The private residential market may see a knee jerk reaction in Q4 2022 and price growth could be flat as it assesses the impact of the new measures against the prospect of an economic recession.
