Measures Check Hdb Resale Market Running Out Line Economic Fundamentals

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New measures to cool public housing resale market; LTV limit cut for HDB loansOn Aug 20, the loan-to-value (LTV) limit for HDB housing loans was reduced from 80% to 75%. This is in line with bank loans, which have maintained a LTV ratio of 75%. This adjustment is the fourth round of cooling measures aimed at the HDB market since December 2021, and represents the third adjustment to the HDB LTV ratio. The reduction in LTV ratio is intended to help cool the top-end HDB resale market, which has seen a spike in the number of million-dollar transactions. The move comes as part of broader efforts to stabilise the property market and prevent a bubble from forming, according to Minister for National Development, Desmond Lee.The Cooling Effect of Previous MeasuresSince the end of 2021, there have been a series of measures implemented to cool the HDB market. In December of that year, the LTV ratio was reduced from 90% to 85%, before being further reduced to 80% in September 2022. Now, with the latest adjustment, the LTV ratio is at 75%. According to Mohan Sandrasegeran, Head of Research and Data Analytics at SRI, the previous measures have been effective in moderating resale price growth, which has decreased from 10.4% in 2022 to 4.9% by 2023. This indicates the effectiveness of such measures in stabilising the market.Meanwhile, the number of million-dollar HDB resale transactions has continued to rise. In July this year, the number of such transactions reached an all-time high of 124. This is a sharp increase from just 82 transactions in 2020. In fact, the numbers have already surpassed the 2020 figures, with 539 transactions in the first seven months of 2024. Of these, 13 were transacted at prices above $1.5 million, with the highest being $1.73 million. However, these transactions only make up a small percentage of all resale transactions – about 2% according to Minister Lee.The Impact of LTV Limit CutWhile the new measures will impact HDB homebuyers by increasing the downpayment, it is expected to only affect a small proportion of buyers. This is because almost nine in 10 buyers with HDB loans currently borrow at LTV ratios of 75% or less. However, these measures are aimed at cooling the top-end of the HDB market, where prices have been driven up by buyers who do not require HDB loans. According to PropNex CEO Ismail Gafoor, private property owners whose household incomes have exceeded the $14,000 income ceiling and are not eligible for HDB loans are likely to be unaffected by the new rules.Expanded CPF Housing GrantsOn August 19, the CPF Housing Grants were expanded to support lower-to-middle-income households buying new or resale flats as their first home. The Enhanced CPF Housing Grant (EHG) has been increased to $120,000 for eligible first-timer families and up to $60,000 for eligible first-timer singles. This is a significant increase from the previous grant of $80,000 and $40,000, respectively. For lower-income households, this will help offset the increase in downpayment resulting from the new cooling measures.However, for more expensive HDB resale units, the shortfall increases. For example, the average cost of a four-room HDB resale unit is $616,000. This requires a minimum monthly household income of $7,000 to service the loan and a downpayment that has now been increased by $30,800. While the new EHG amounts to an additional $5,000, it is still $25,800 short. As housing grants do not increase by as much compared to the increase in downpayment, it may become more challenging for middle-income households to afford a HDB resale unit in the future.As for the upcoming 7,000 flats that are reaching their minimum occupation period (MOP) in 2025, they will exert upward pressure on HDB resale prices, as there is expected to be a lower supply of new flats compared to the current year. This may be a cause of concern for lower-income households planning to purchase a flat in the near future.The Importance of Prudent BorrowingAccording to Minister Lee, it is crucial for buyers to be mindful of their borrowing and not overextend themselves. This is because the property market is cyclical, and those who purchase at high prices with large loans are the most severely impacted when the market cools. As such, he urges for prudent borrowing and limiting demand in the market to prevent a potential bubble from forming.