SINGAPORE, 30 September 2022 – Mr Lam Chern Woon (蓝振文), Head of Research and Consulting at EDMUND TIE comments on the new cooling measures.
Just before midnight on 29 September 2022, the MAS, MND and HDB issued a joint press release, announcing measures to calibrate property financing conditions and moderate property demand, especially in the HDB resale market.
The slew of measures includes the raising by 0.5% pt of the medium-term stress test interest rate (from 3.5% to 4.0%) used for computing loan eligibility to satisfy the TDSR limit of 55% for all housing loans, and the MSR limit of 30% of housing loans to purchase ECs/HDBs. The LTV limit was also reduced from 85% to 80% for HDB loans, and a 3% interest rate floor introduced for loan eligibility computation. Last but not least, private and ex-private property owners (PPOs/ex-PPOs) will now have to wait out 15 months before purchasing a HDB resale flat without subsidies. The wait-out period of 30 months continues to apply for purchases of new HDB flats or subsidized resale flats.
The calibration of the medium-term stress test interest rate is widely expected, as mortgage rates have already exceeded 3% in recent months and are likely to exceed the pre-measure stress test rate of 3.5% going into 2023, vanquishing any meaningful buffer to safeguard borrowers’ ability to service property loans in a rising rate environment.
For the private property market where S$2 million home price quantums are increasingly common, even in the suburban segment, affordability will undoubtedly be impacted. A S$1.5 million loan with a 30-year tenure would now require a higher monthly income of about S$13,000, compared to the earlier S$12,200, assuming no other debt obligations. A household with a monthly income of about $12,200 would now only be eligible for up to S$1.41 million loan to support a S$1.88 million property purchase, versus S$2 million previously.
The upshot is that property hunters would have to adjust their budgets accordingly. We expect overall private home prices to rise by about 7% for 2022 following last year’s 10.6% growth, with a further moderation to 1-3% growth for 2023.
The exuberant public resale market has also unnerved the government, and the bulk of the measures relates to this segment. The authorities are clearly concerned about the ripple effects of ever-rising resale HDB prices on the private property market, plus the BTO market where prices are offered at a discount to market. Policy makers are seeking to strengthen sustainability in the public housing market through the raising of the stress test rate, coupled with maintaining the MSR limit at a prudent 30%. The reduction of the LTV limit for HDB loans will help narrow the discrepancy versus the 75% limit for loans from financial institutions. A high LTV limit for HDB loans, coupled with the relatively low 2.6% HDB loan concessionary rate, have undoubtedly led eye-watering prices paid for some resale HDB flats.
These new measures to tame the public resale market, coupled with the imposition of the 15-month wait-out period for PPOs/ex-PPOs to purchase non-subsidised resale homes will likely temper buying demand. The 15-month wait-out period effectively removes a chunk of the downgrading segment, but the effective impact may be ameliorated somewhat by the fact that seniors aged 55 and above downgrading to 4-room or smaller resale flats are exempted from the wait-out period.
On the whole, the property market is now closer to an inflection point, amid slowing economic growth, rising living costs and interest rates. The final straw that breaks the housing camel’s back would be an outright recession impacting employment and income, or further cooling measures.
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