Singapore property cooling measures 2022: How they may impact you as a consumer

Property prices are expected to correct in the months ahead which may favour buyers. Meanwhile, the rental market is expected to heat up further.

By Khalil Adis

A scaled model for public housing at HDB Hub. Photo: Khalil Adis Consultancy.

On 30 September 2022, the Singapore government announced various property cooling measures that are aimed at ensuring prudent borrowing and moderating demand.

Indeed, the HDB Resale Price Index (RPI) and Private Property Index (PPI) as of the third quarter of 2022 are now at record highs at 168.1 and 187.8 points respectively.

This means that first-time homebuyers are finding both HDB flats and private properties to be severely unaffordable.

Meanwhile, potential sellers see this as an opportune time to profit from the red-hot property market.

With this in mind, the government has had to intervene to ensure property prices remain affordable and are in tandem with wages.

The measures include the following four-pronged approach:

1. Increasing the rate floor for private residential property loans. The Monetary Authority of Singapore (MAS) will raise the interest floor rate by 0.5 per cent to 4 per cent per annum up from 3.5 per cent per annum to compute the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).
2. For housing loans granted by HDB, HDB will introduce an interest rate floor of 3 per cent for computing the eligible loan amount.
3. Lowering the Loan-to-Value (LTV) limit for HDB housing loans from 85 per cent to 80 per cent.
4. Imposing a wait-out period of 15 months for existing and former private residential property owners to buy a non-subsidised HDB resale flat.

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How they may impact you as a consumer:

HDB Hub @ Toa Payoh. Photo: Khalil Adis Consultancy.

For point 1, you will have to have a higher monthly combined income and pay a higher monthly mortgage and combined income .

However, the actual interest rates charged will be determined by the private financial institutions.

For point 2, the stress test has been increased to 3 per cent when calculating your monthly mortgage but with a reduced Loan-to-Value (LTV) limit at 80 per cent. 

This is to ensure your monthly mortgage remains affordable and within the 30 per cent Mortgage Servicing Ratio (MSR).

On the overall, with a higher downpayment of 20 per cent, it will result in a lower mortgage payment when compared to an LTV limit of 85 per cent.

However, this will not affect the actual HDB concessionary interest rate, which will remain unchanged at 2.6 per cent per annum.

For point 3, buyers will need to come up with a higher cash and/or CPF amount (an increase of 5 per cent) to make up the 20 per cent downpayment.

For example, for an $500,000 HDB flat, you will need to come up with $100,000 (80 per cent LTV) as opposed to $75,000 (85 per cent LTV). 

This means an additional cash and/or CPF outlay of $25,000.

For point 4, this will mean sellers will have to rent either an HDB flat or private property during the interim period.

This will result in increased demand in the rental market which will push asking prices further.

According to data from the Urban Redevelopment Authority (URA), rentals of private residential properties had increased by 8.6 per cent in the third quarter to reach 137.9 points from 127.0 points in the second quarter of 2022.

Meanwhile, HDB rentals have increased by around 30 per cent.

Looking ahead, the rental market is expected to strengthen further which will favour landlords.

Summary

HDB flats in Punggol. Photo: Khalil Adis Consultancy.

For buyers who are looking to buy a resale HDB flat or private property, you might want to wait out until their prices correct.

For sellers, you only have a small window period to take advantage of the exuberant market before it cools in the coming months.

For landlords, the market will favour you due to increasing demand from existing tenants and ex-private property owners who have already sold their homes.

For tenants, you will have to set aside more budget as rentals have now increased by around 30 per cent.