SINGAPORE, 20 August 2024 - The government has introduced further measures to cool the HDB resale flat market and improve the affordability of public housing flats for first-time home buyers, particularly those in the lower-to-middle income household groups.

To encourage home buyers to borrow prudently, the government has revised the Loan-to-Value (LTV) limit for HDB housing loans from 80% to 75%, which will lower the amount of loan that the borrower may receive. This is the fourth round of property cooling measures since December 2021 and the third that directly affects the public housing sector (see Table 1). Notably, since December 2021, the LTV for loans granted by the HDB has been tightened from 90% to 75%.

Table 1: Summary of recent rounds of property cooling measures

Ismail Gafoor, CEO of PropNex Realty, said, "The cooling measures did not come as a surprise as the HDB resale flat prices have grown at a faster pace in recent quarters amid healthy resale flat demand. Meanwhile, the number of flats resold for more than $1 million has also grabbed media headlines, and perhaps raised some concerns regarding the affordability of public housing. Broadly, we think the cut in LTV to 75% could potentially help to cool the top end of the HDB resale market as buyers who take HDB loans will not be able to borrow as much as before.

"However, the latest LTV restriction will not impact certain segment of buyers who may be taking bank financing (with LTV at 75%) to fund their flat purchase, as they have a monthly household income of more than $14,000 and are not eligible to take an HDB loan. We do not have specific data, but it is possible that this group of higher-income buyers have contributed to the high flat prices in the resale market. Therefore, we suspect that the new cooling measure may not capture these buyers, who may continue to be able to pay a higher price for the flat that they desire," Mr Gafoor.

The cut in LTV limit means that flat buyers will have to fork out more downpayment as their loan amount will be reduced. For example, the difference in downpayment comes up to $15,000 for a flat priced at $300,000 when the LTV has been reduced to 75% (see Table 2). For many low-to-middle income households, the difference in downpayment could likely be offset by the Enhanced CPF Housing Grant (EHG) which has been raised, as part of the measures announced on 19 August.

Table 2: Illustration on difference in downpayment due to LTV reduction

The EHG will be increased to support first-timer BTO (build-to-order) flat and resale flat buyers. Eligible first-timer families could receive an EHG of up to $120,000 from up to $80,000 previously, while eligible first-timer singles may get up to $60,000 from up to $40,000 prior to the revision. The total grant for resale flats could be higher, factoring in the Proximity Housing Grant (up to $30,000) and the CPF Housing Grant (up to $80,000) - which could amount to up to $230,000 for first-timer families and up to $115,000 for first-timer singles (PHG and CPF Housing Grant at up to $15,000 and up to $40,000 respectively for singles).

The revision to the EHG is calibrated in such a way that the lower income families will enjoy a larger magnitude of increase, which is fair and will help to improve affordability. Overall, all income groups will enjoy some form of a bump-up in the EHG, with the exception of those with an average monthly household income of $8,000 to $9,000 ($4,000 to $4,500 for singles). Households who earn more than $9,000 a month (> $4,500 for singles) are not eligible for the EHG.

Wong Siew Ying, Head of Research and Content, PropNex Realty: "The increase in EHG will certainly help to support first-timer home buyers. However, we remain watchful on any potential unintended effects on the HDB resale market. For instance, it may possibly spur resale flat demand as the grant amount could be quite generous after factoring the Proximity Housing Grant and CPF Housing Grant. In addition, there is a chance that some resale flat sellers may now hold on to firm asking price for their flat, as they perceived that buyers are able to enjoy higher grant."

Taken together, the latest cooling measures could rein in some demand at the top-end of the market, but PropNex does not expect the changes to significantly impact the overall HDB resale segment.