Measures Check Hdb Resale Market Running Out Line Economic Fundamentals
The LTV (loan-to-value) limit for HDB housing loans was lowered from 80% to 75% starting on Aug 20, bringing it in line with loans granted by financial institutions. This marks the fourth round of cooling measures specifically focused on the HDB market since December 2021, and the third reduction to the HDB LTV ratio. In December 2021, the HDB LTV ratio was first lowered from 90% to 85%, then again from 85% to 80% in September 2022, and now to 75% starting Aug 20.
According to Desmond Lee, Minister for National Development, these measures were introduced in response to sustained demand from all buyer groups, including young couples, second-timers, and singles looking to purchase their first flat. However, the continuous adjustments to the HDB LTV ratio have helped to moderate the resale price growth from 10.4% in 2022 to 4.9% in 2023, reflecting the effectiveness of such measures in stabilizing the market, according to Mohan Sandrasegeran, head of research and data analytics at SRI.
The spike in the number of million-dollar flats being sold in the resale market has also raised concerns. In July, the number of million-dollar HDB resale transactions reached an all-time high of 124, compared to only 82 in 2020. This has sparked worries about the affordability of HDB resale flats in general. Minister Lee warned of the possibility of a bubble forming in the market if left unchecked.
Hence, the latest measures aim to cool the top-end of the HDB resale market by reducing the LTV ratio to 75%. This means that HDB homebuyers will have to pay a higher downpayment. However, first-time home buyers, especially those from lower income households, may be less affected as they may be eligible for the Enhanced CPF Housing Grant (EHG) which has been increased to up to $120,000 for eligible first-timer families and $60,000 for eligible first-timer singles.
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On the other hand, buyers who are not eligible for an HDB loan and thus have to take bank financing, will not be impacted by the reduced LTV limit as it is already set at 75%. These buyers are likely to be those with higher monthly household incomes who have contributed to the high flat prices in the resale market.
Furthermore, the reduced LTV ratio may have a greater impact on buyers of pricier HDB resale units. For example, the average cost of a four-room HDB resale unit in 2024 is $616,000, and it requires a minimum monthly household income of $7,000 to service the loan. The new LTV ratio will increase the down payment by $30,800, and the EHG amount only increases by $5,000, resulting in a shortfall of $25,8000 in additional funds needed upfront.
Despite these measures, Christine Sun, chief researcher and strategist at OrangeTee Group, believes that the lack of new supply is expected to continue. An estimated 7,000 flats are expected to reach the end of their minimum occupation period (MOP) in 2025, which is lower than the 12,000 flats this year. This would likely continue to exert upward pressure on HDB resale prices next year. However, the measures have been carefully calibrated to target those who need financial assistance while curbing the rise of million-dollar price tags on resale flats.