EDGEPROP (SINGAPORE) - The number of private residential property owners who have purchased public housing flats in the HDB resale market doubled in 2021 and the first three quarters of 2022 compared to 2019 and 2020. These private residential property owners make up one in 10 buyers in the HDB resale market today.
“Private property owners generally have more financial means to buy resale flats as compared with first-time home buyers or existing flat owners,” Desmond Lee, Minister for National Development, told Parliament on Oct 4. “They may not even need to take a loan to complete their purchase. They therefore tend to pay higher amounts of cash-over-valuation [COV] when buying HDB resale flats.”
Demand for HDB housing has also increased due to the rise in the number of new households. “Echo boomers” (those aged 25 to 29) and those in their 30s are getting married and setting up homes. Societal trends include smaller households, with more singles and young couples choosing to buy their own homes, a trend that was accentuated by the Covid pandemic. “Many have turned to resale HDB flats due to the longer delays in completion of Build-to-Order [BTO] flats caused by the pandemic,” explains Lee.
These demand factors, fuelled by the low interest-rate environment, made it cheaper to service a home loan. This in turn, put further upward pressure on HDB resale property prices.
After the government implemented a set of cooling measures on Dec 16 last year, the resale HDB price index climbed 5.3% in 1H2022. On Oct 3, the HDB flash estimate for 3Q2022 showed that HDB prices increased by another 2.4% q-o-q, bringing the year-to-date increase to 7.8% (as of Sept 29).
“We understand the concerns about housing affordability and have therefore been carefully monitoring the housing market,” says Lee. “We are committed to keeping public housing affordable and accessible to meet the housing aspirations of Singaporeans and helping Singaporeans own their own homes. This is a key long-standing national priority.”
The average price of a new four-room HDB flat in a non-mature estate has remained relatively stable: from $341,000 in 2019 to $348,000 in the first three quarters of 2022. In the recent August BTO exercise, a four-room flat in Jurong East, Woodlands or Choa Chu Kang is priced similarly to comparable flats in non-mature estates at around $348,000.
“We have managed to keep prices relatively stable as market subsidies have been increased to keep new flats affordable,” says Lee. Eligible first-time home buyers of public housing flats can also receive enhanced HDB housing grants of up to $80,000, with more help for lower-income buyers, he adds.
For new flats in prime central locations that will be launched under the Prime Location Housing (PLH) Model, additional subsidies will be provided on top of the already substantial subsidies provided for BTO flats, according to Lee. “This is to keep flats affordable for a wider range of Singaporeans.”
MP Yip Hon Weng (Yio Chu Kang) asked if there should be affordability benchmarks in place that take into consideration the household income of families at the 30th percentile instead of the median household income.
“Our affordability benchmarks not only consider median incomes, but we also provide a wide range of BTO flats for different housing needs and budgets,” says Lee.
As an example, Lee used a household with a monthly income of $5,000, which is below the 30th percentile. After factoring the $45,000 the household can expect to get in grants, they will only need to use about 23% of their monthly income for their housing loan. This means, the household can service the mortgage from their monthly Central Provident Fund (CPF) contributions with no further cash outlay.
The household will be able to afford a four-room flat for $348,000 in a non-mature estate. This works out to a home-price-to-income ratio of 5 (the price of the new home is equivalent to five times their annual household income).
For a couple who are both fresh graduates and buying their first home, the combined salary may be $6,500 a month. They would receive $30,000 in HDB grants and may use 18% of their monthly household income towards mortgage payments. This means that they could pay off their mortgage entirely through their monthly CPF contributions.
Based on the price of $348,000 for a four-room BTO flat, it translates to a home-price-to-income ratio of 4.
As a comparison, the median home price to median household income in other cities such as London, Los Angeles and Sydney are much higher, at between 8 and 15 times, points out Lee. In Hong Kong, it is more than 20 times.
The mortgage servicing ratio (MSR) — which is the proportion of monthly income going towards mortgage repayments — has remained below 25% for most new and resale flat buyers taking on an HDB loan, says Lee. “This means that most first-time home buyers can service their housing loans using their monthly CPF contributions with little or no cash outlay,” he adds. “This is also well below the international benchmark of between 30% and 35%.”
MP Yip also asked what measures are being taken to ensure that housing remains affordable for the wider Singapore property market.
Minister Lee says that the Sept 30 cooling measures are aimed at moderating demand in the HDB resale market and ensuring that HDB flats continue to remain affordable, hence the new 15-month wait-out period for private property owners and ex-private property owners who wish to buy HDB resale flats. (Find HDB flats for rent or sale with our Singapore HDB directory)
However, there are exceptions: senior citizens of 55 years and above or those with extenuating circumstances such as financial difficulties and therefore need to sell their private property, says Lee. Such cases will be evaluated on a case-by-case basis.
Raising interest rate floor to ensure ‘prudent borrowing’
The measures were also aimed at encouraging “prudent borrowing amidst the rising interest-rate environment”, he adds. This is because from 2013 to 2021, interest rates were exceptionally low, which made it cheap to get a mortgage, especially from financial institutions.
“But market interest rates have risen over the past year, with further increases expected over the medium-term,” says Lee. “This will increase borrowing costs for those who are buying a new home or those who are servicing an existing home loan pegged to floating rates.”
To safeguard home buyers and to ensure that they can service their long-term home loans, the medium-term interest rate used under the total debt servicing ratio (TDSR) and MSR frameworks to compute the borrowers’ maximum loan quantum for residential property loans granted by private financial institutions has been raised to 4% per annum, from 3.5% before.
From Sept 30, the HDB interest rate floor of 3% per annum will be used to compute the borrowers’ max eligible housing loan amount. This is 1% below the rate floor for financial institutions. This will reduce the maximum loan quantum for home buyers taking HDB loans but will not increase the monthly instalment for borrowers as there is no change to the HDB concessionary rate of 2.6%, says Lee.
The loan-to-value (LTV) for HDB housing loans has also been capped at 80% from Sept 30, down from 85% before. Prior to the cooling measures in December 2021, the LTV was 90%.
This is to ensure that HDB home buyers borrow prudently in view of the uncertain economic outlook and rising interest-rate environment, Lee cautions.
“If we do not move now, households may run into housing difficulties when they find it harder to service their housing obligations,” he continues. “This is already happening in other countries where we see homeowners defaulting on their mortgage payments and losing their homes.”
The government recognises that there is genuine demand from home buyers and have therefore increased supply in both the public and private housing markets. Supply in the HDB market has been ramped up.
In November, 9,500 new BTO flats will be launched, bringing the total of BTO flats launched this year to 23,000. Next year, another 23,000 new BTO flats will be launched. “We are prepared to launch up to 100,000 flats in total from 2021–2025 if needed,” says Lee. “We also endeavour to have more projects with shorter waiting times of up to three years if possible.”
The supply of private housing on the Confirmed List of the Government Land Sales Programme has also been increased by 75% from 2021 to 2022. “We are prepared to increase supply further to meet demand for private housing if needed,” according to Lee.
He adds: “The government will intervene and do what is necessary to ensure a stable property market and affordable public housing for Singapore. This has been our approach all along. We will do so decisively but also carefully, being cognizant of the uncertain global economic outlook and rising interest rate environment which will affect home prices and contribute to uncertainty in our property market.”