Measures Check Hdb Resale Market Running Out Line Economic Fundamentals
The HDB loan-to-value (LTV) limit has been lowered from 80% to 75% effective from Aug 20, bringing it in line with loans granted by financial institutions. This is the fourth round of property cooling measures specifically targeted at the HDB market since December 2021, and the third adjustment to the HDB LTV ratio.
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According to Minister for National Development Desmond Lee, the measures have been introduced in response to sustained broad-based demand from all buyer groups – from young couples to second-timers and singles wanting to own their flat earlier. The reduction in LTV ratios has resulted in moderated resale price growth from 10.4% in 2022 to 4.9% in 2023, pointing to the effectiveness of these measures in stabilising the market.
Despite this, there has been a spike in the number of million-dollar flats being transacted in the resale market. The number of such transactions reached an all-time high of 124 in July, compared to just 82 for the whole of 2020. This has raised concerns about the affordability of HDB resale flats, and the potential for a property bubble.
To address this, the government has now lowered the LTV limit to 75%. Minister Lee acknowledges that the majority of HDB home loans will not be affected, as almost nine out of 10 buyers already borrow at LTV ratios of 75% or less. This move is aimed at cooling the top-end of the HDB resale market, as buyers who take HDB loans will not be able to borrow as much as before.
However, this may not capture higher-income buyers who do not qualify for an HDB loan and are likely to continue paying a higher price for the flat they desire. The difference in downpayment for a $300,000 flat will be $15,000, but this widens to $50,000 and $75,000 for flats priced at $1 million and $1.5 million respectively. The Enhanced CPF Housing Grant (EHG) has been increased to offset this, particularly for first-time homebuyers from lower-income households.
For example, a two-room HDB resale flat at $336,000 would require a minimum household income of $3,900, after taking into account a mortgage servicing ratio of 30%, HDB’s interest rate of 2.6%, and no other external sources of financing. The new LTV ratio will increase the down payment by an additional $16,800, but the EHG has been increased by $25,000, offsetting this burden. However, for higher-priced units, the shortfall in additional funds needed upfront will be much larger.
The lack of new supply is expected to continue, with only an estimated 7,000 flats reaching the end of their minimum occupation period (MOP) in 2025, compared to 12,000 this year. This would further push up HDB resale prices next year. The latest cooling measure is a temporary solution to slow down price increases and curb the million-dollar price tags on resale flats, specifically targeting those in need of financial assistance while also addressing concerns about a potential property bubble.
