In the midst of a difficult economic situation, cooling measures may be implemented to slow the rapid rise in Singapore housing prices

Oct 03, 2022

Only nine months after a set of property cooling measures went into effect in late 2021, the government announced measures that will go into effect on September 30, 2022, to foster sustainable circumstances in the property market by assuring cautious financing and moderating demand.

The most recent initiatives are anticipated to reduce housing demand and prices. To begin with, potential house buyers' purchasing power has been reduced by restricting the amount that purchasers may gear up.

The Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for property loans given by private financial institutions are computed using a 0.5 percentage point higher medium-term interest rate floor. The TDSR and MSR for house loans will be calculated using a 4% annual interest rate floor, up from 3.50% before.

The TDSR maximum is 55%, which refers to the amount of a borrower's gross monthly income that goes toward repaying monthly debt obligations, including the loan being requested for. Buyers of HDB flats and executive condominium (EC) units with a minimum occupancy time that has not expired are subject to an MSR ceiling of 30% on the share of total monthly income that goes toward repaying all property debts, including the loan being sought for.

For HDB flat buyers requesting a loan from the HDB, an interest rate floor of 3% per year is used to calculate the qualifying loan amount available, and the loan-to-value limit for HDB housing loans is reduced to 80%, down from 85% before.

In summary, prospective house buyers can borrow less. According to Edmund Tie, a S$1.5 million loan for a private property with a 30-year duration would now need a monthly income of around S$13,000, up from S$12,200 earlier, assuming no other debt commitments.

Add to it the fact that house loans are becoming more expensive as interest rates rise. A loan tied to the 3-month compounded Singapore overnight rate average (SORA) costs around 180 basis points more now than it did at the beginning of the year, with the 3-month SORA at 1.97 percent as of the valuation date of September 29, 2022.

Second, the pool of possible house purchasers may become smaller. Private residential property owners may formerly acquire a non-subsidised HDB resale flat on the open market if they sold their private properties within six months of the HDB flat purchase. There is now a 15-month waiting time for private homeowners and previous private homeowners to purchase a non-subsidised HDB resale apartment. The wait-out time will not apply to seniors 55 and over who are relocating from their private home to a 4-room or smaller resale apartment.

The aforementioned action may deflate the HDB resale market, where a growing number of apartments are changing hands for S$1 million or more apiece. A downturn in the HDB resale market may have an impact on demand for private properties, particularly in the suburban segment. It may be more difficult for a HDB flat owner to rely on revenues from the sale of a HDB house to assist pay a private home purchase.

According to the Urban Redevelopment Authority, private house prices grew 18.9 percent between Q1 2020 and Q2 2022, with prices of non-landed residences in the Rest of Central Region or city perimeter rising by 26.7 percent and 17.7 percent, respectively, between Q1 2020 and Q2 2022. Meanwhile, the HDB Resale Price Index increased by 24.6 percent during the same time period.

The rise in the number of resident households outpaces the growth in the resident population as a demand driver for dwellings. There are cash-rich purchasers who are unaffected by borrowing limitations or rising interest rates, except that there is a larger opportunity cost to forego receiving, instance, fixed deposit rates while utilising funds to purchase residences.

Some foreigners, unconcerned by hefty transaction fees, seek Singapore properties as safe haven assets, with the Singapore dollar's strength vs various currencies an added appeal. Also, some senior people who are transitioning from private to HDB housing may be content with purchasing 4-room resale flats, particularly in mature estates.

Nonetheless, the recent surge in property prices may be coming to an end. While the rental market remains robust, the limited supply situation will progressively improve as more new houses are built.

Developers acted cautiously, submitting fewer bids than most property consultants expected for two suburban private home sites and one EC site in state competitions that concluded in September. Several bids for residential en bloc selling plots have recently expired without a sale. Developers with unfinished residential projects may now be concerned about their ability to transfer inventory in the face of increasing financing costs.

Over two days in mid-September, private house purchasers purchased 508 apartments, or 84% of Lentor Modern's 605 dwellings. However, home purchasing attitude might deteriorate dramatically as home loan rates continue to rise, home purchasers' borrowing ability has been hampered, the lustre has worn off the HDB resale market, and economic downturn may damage jobs, wage growth, and household wealth. When attitude becomes more negative, consumers will be less eager to buy properties for fear of losing out.

Political stability, economic prosperity, and improved infrastructure all contribute to the long-term price increase of properties in this area. The government, on the other hand, would actively monitor the property market and alter rules to guarantee market viability. If more intervention is considered necessary, do not rule it out.