Cash-rich private property downgraders, en bloc sellers targeted in new property curbs

With interest rates set to rise further, fresh limits on home loans to encourage more prudent borrowing came as little surprise. PHOTO: BT FILE

SINGAPORE – Just nine months after property curbs were imposed to keep private residential prices from running ahead of fundamentals, a new slew of property curbs on Friday took aim at the public housing market, which had been largely spared in the previous round.

This comes as hot money from private property downgraders flowing into the public housing market, coupled with pandemic-related disruptions in the construction sector, helped fuel a 12.7 per cent increase in Housing Board resale prices in 2021, and a further rise of 5.3 per cent in the first half of 2022.

The exuberant public resale market has unnerved the government, said Mr Lam Chern Woon, head of research and consulting at Edmund Tie.

“The authorities are clearly concerned about the ripple effects of rising resale HDB prices on the private property market, plus the BTO (Built-To-Order) market, where prices are offered at a discount to market,” he noted.

With interest rates set to rise further, fresh limits on home loans to encourage more prudent borrowing came as little surprise.

The new medium-term interest rate floor used to calculate loan amounts is 4 per cent for residential property loans, and 5 per cent for non-residential property loans.

Apart from cooling the HDB resale market directly, Friday’s measures will indirectly cool the private residential market, particularly the mass market segment, which is supported by HDB upgraders, said Ms Catherine He, head of research at Colliers.

A slowdown in the HDB resale market could shrink the pool of HDB upgraders for private homes in the suburbs, which have seen new launch prices exceeding $2,000 psf – a price level more commonly seen in the prime and city fringe condo markets.

In the non-residential property market, the segment most likely to be affected would be commercial properties for investment purposes, including shophouses, strata office and retail units, and smaller industrial properties, Ms He said.

According to Mr Karamjit Singh, chief executive of property consultancy Delasa, prior to Friday’s cooling measures, a household earning a monthly income of $15,000 could qualify for a maximum loan of about $1.8 million, which meant they could potentially have afforded a $2.4 million property.

“Now with a higher TDSR (total debt servicing ratio) interest rate of 4 per cent, the maximum loan amount will be reduced to $1.7 million, and the buyer will have to come up with more cash, or contend with a lower-priced property,” he said.

The new measures are likely to moderate overall private home price growth to 7 per cent for 2022, down from 10.6 per cent in 2021.

In 2023, price growth could moderate further to 1 per cent to 3 per cent, according to Edmund Tie.

In the public housing market, the wait-out period of 15 months for current and former private home owners to buy a non-subsidised HDB resale flat could dampen demand for flats from downgraders.

But this could be mitigated somewhat as seniors aged 55 and above who are downgrading to four-room or smaller resale flats are exempt from the wait-out period.

On the other hand, the long wait-out period will support rentals for both private and public housing markets, even as new home supply increases next year when more projects are completed amid an expected slower economy, said Ms Tricia Song, CBRE’s head of research for South-east Asia.

As at the second quarter 2022, 17,394 private homes are due to be completed in 2023, the highest number of completions in a year since 2016, she noted.

The new measures may deal another blow to the collective sale market, which was just starting to perk up in recent months. Those selling en bloc, facing fewer replacement home options in the public housing market, may try to raise their reserve price in order to secure enough funds to buy their next home from the private market.

Developers will likely be put off, especially after being recently hit with higher land betterment charges, Ms Song said.

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