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The Singapore government has announced another round of new property cooling measures.

The measures, which will affect both Housing and Development Board (HDB) and private residences, will aim to temper demand amid rising interest rates.

They include:

• tightening the maximum loan quantum limits for housing loans, and
• introducing a 15-month wait-out period for private home owners to buy a HDB resale flat.

This announcement comes less than a year after the last set of property cooling measures in December 2021.

Background

The changes come on the back of "significantly" rising market interest rates, said a joint press release from HDB, Ministry of National Development (MND), and Monetary Authority of Singapore (MAS) issued on Sep. 29.

In Singapore, bank loan interest rates for HDB flats have risen significantly over the past year.

Previously lower than HDB's concessionary loan rate, fixed at 2.6 per cent for the past two decades, they have since surged past that number.

Some banks have also temporarily removed their fixed-rate home loans, reported CNA.

But with inflation showing no signs of easing, interest rates are expected to rise even further.

This will affect borrowing costs for home purchases.

The new measures will ensure prudent borrowing and avoid future difficulties in repaying home loans, the government said.

Assume higher interest rates

Interest rates are a key part of the formula used to compute how much money a prospective homeowner can borrow.

To be eligible to take out a loan, the buyer has to be within the threshold for the Total Debt Servicing Ratio (TDSR) and the Mortgage Servicing Ratio (MSR).

This threshold will soon be reduced as the government will now assume higher interest rates when calculating eligible loan amounts.

For property loans granted by banks, MAS will increase by 0.5 per cent the medium-term interest rate floor used to compute the TDSR and the MSR.

Actual interest rates will continue to be determined by the institutions, MAS said in the release.

Meanwhile, for HDB housing loans, HDB will introduce an interest rate floor of 3 per cent for computing the eligible loan amount.

This will not affect the actual HDB concessionary interest rate, which remains unchanged at 2.6 per cent.

The new measures will apply in these cases:

• For private bank loans: if the option to purchase (OTP) is granted on or after Sep. 30. If there is no OTP, it will apply to loans where the date of the sale and purchase agreement is on or after Sep. 30.
• For HDB loans: will only apply to fresh applications for HDB Loan Eligibility letters received on or after Sep. 30.

Lower maximum loans

The government will also lower the Loan-to-Value (LTV) limit for HDB housing loans from 85 per cent to 80 per cent.

This will reduce the maximum amount that prospective homeowners can borrow from HDB.

This is a further reduction from the announcement in December 2021, which saw the LTV being cut from 90 per cent to 85 per cent.

The new limit will apply to new flat applications for sales exercises launched after Sep. 30 and complete resale applications which are received by HDB from Sep. 30.

Loans granted by private financial institutions will remain at 75 per cent and are not affected by this revision.

They said:

"This is not expected to affect first-timer and lower-income flat buyers significantly, as they may receive significant housing grants of up to S$80,000 when buying a subsidised flat directly from HDB, or up to S$160,000 when buying a resale flat."

15-month wait out period

The government also noted that even after implementing the last set of cooling measures, the HDB Resale Price Index has increased by more than 5 per cent.

This reflects a broad-based increase in demand for public housing, they added.

To moderate demand and ensure that resale flats remain affordable, especially for first-time buyers, the government will introduce a wait-out period of 15 months for private home owners who want to buy a non-subsidised HDB resale flat.

The wait-out period will kick in after they have sold their private property.

The government added that this is a "temporary measure" to temper demand, which will be reviewed depending on market changes.

However, this wait-out period will not apply to seniors aged 55 and above who are downgrading to a four-room or smaller resale flat.

They said:

"The government remains committed to keep public housing inclusive, affordable and accessible to Singaporeans."

They also urged households to "exercise prudence" before taking up any new loans or making long-term financial commitments.

Top image by Mike Enerio on Unsplash.