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There has been a strong "broad-based" demand for housing over the past two years, including within the resale market, National Development Minister Desmond Lee said in Parliament on Oct. 4.

In addition to low interest rates over the past few years, HDB resale flat prices have gone up.

However, the government has introduced a slew of measures to attack the problem from both ends, moderating demand while also increasing supply, in a bid to rein in prices.

Strong demand

According to the minister, factors for the strong demand include:

• The formation of more households as more people in their 30s get married, especially with the easing of Covid-19 measures,
• A shift in societal trends towards smaller households,
• Construction delays, and
• More private property owners and existing HDB market owners cashing out on their property and going into the HDB resale market.

These factors, along with an earlier environment of low interest rates that made it cheaper to service a home loan, have put upwards pressure on HDB resale flat prices, Lee pointed out.

Since the government implemented measures in Dec. 2021 to moderate demand, the HDB Resale Price Index has increased by 5.3 per cent in the first half of 2022, the minister noted.

He added, 'To be clear, foreigners are not allowed to buy HDB flats and would not have contributed to the increase in demand for public housing. They also account for only a small proportion of overall private residential property demand."

The Ministry of National Development (MND) also highlighted that while the number of million-dollar resale flats being sold increased in 2021, such transactions are less than one per cent of all HDB resale transactions.

HDB flats are built and sold below market prices

Lee was responding to questions about the measures being taken to address the sentiment that Singapore's property market is becoming unaffordable for the masses and whether recent adjustments to manpower policies will affect property prices.

He was also asked what else the government will do, apart from cooling measures, to keep public housing affordable for Singaporeans.

The minister called keeping public housing accessible and affordable a "key national priority", in order to provide a basic foundation for raising families.

New HDB flats are therefore built and sold below market prices as they come with significant subsidies, he said.

According to Lee, the average price of a new four-room flat in a non-mature estate has remained relatively stable at S$341,000 in 2019 and S$348,000 in the first three quarters of 2022.

Subsidies are provided to first-time home buyers

Eligible first-time buyers can also receive Enhanced CPF Housing Grants (EHG) of up to $80,000, with more help for lower-income buyers.

As for flats in prime, central locations, the government has introduced the Prime Location Housing Public Housing model which provides additional subsidies on top of the substantial subsidies already provided for Build-To-Order (BTO) flats.

"This is to keep flats in such locations affordable for a wide range of Singaporeans," he said.

He was echoed by Second Minister for National Development Indranee Rajah, who said that public policies are designed to prioritise and support first-time families.

In pointing out that the vast majority of the BTO flat supply is set aside for first-time families, Indranee highlighted that the quota for three-room was increased by the government to 85 per cent and to 95 per cent for four-room BTO flats in non-mature estates.

As for mature estates, the government continues to set aside 95 per cent of the BTO flat supply for first-time families.

Such families also have more "valid chances" than second-time families in securing a flat, she said.

As for eligible first-time buyers who choose to buy a resale flat, they can enjoy housing grants of up to S$160,000.

Indranee also pointed out that in 2021, around 7,000 families received grants for their resale flat purchases.

What about the affordability of the flats?

Lee also noted that questions had been raised about whether the government should have affordability benchmarks and if these benchmarks should consider families at the 30th percentile of income, instead of just median income.

Here, Lee said, "Our affordability benchmarks do not only consider median incomes, as we provide a wide range of BTO flats for first-time homebuyers with different housing needs and budgets."

Generally, first time buyers can buy homes with little or no cash outlay

Lee gave the following examples:

• A first-timer household that earns about S$5,000, buying a four-room flat in the recent BTO exercise held in August for Woodlands, Jurong East and Choa Chu Kang.
• They will need to use 23 per cent of their monthly income for their housing loan, once S$45,000 in grants has been factored in.

This is due to the BTO flats at the aforementioned locations having a price of around S$348,000, which is comparable to or lower than the average price of BTO flats in non-mature estates.

The buyers will also be able to service their mortgages from their monthly CPF contributions with no cash outlay, if the rate is 23 per cent. This works out to a home price that is five times the buyers' annual household income.

• A first-timer couple of tertiary graduates, with a typical combined income of around S$6,500, would receive S$30,000 in grants.
• They would only need to use 18 per cent of their monthly income for their housing loan, to afford the same new four-room flats in the August BTO exercise.

This means the price of S$348,000 will be about four times' the annual household income of the couple. They will also be able to service their mortgage fully from their CPF contributions.

Lee said that in general, the mortgage servicing ratio (MSR), which is the proportion of monthly income used to service mortgage instalment payments, has remained below 25 per cent for most new and resale first-timer flat buyers taking on an HDB loan.

This is well below the international benchmark of 30 per cent to 35 per cent, and it means that most first-timer buyers can service their housing loans using their monthly CPF contributions, with little or no cash outlay.

New measures to keep housing affordable

Lee brought up the slew of cooling measures that were recently announced on Sep. 30 as an example of government action to keep prices affordable.

These measures will moderate demand in the HDB resale market and encourage prudent borrowing amidst the rising interest rate environment.

15-month wait-out period to moderate demand

The first of these measures is a 15-month wait-out period for private residential property owners who wish to purchase a non-subsidised HDB resale flat.

Prior to this, these owners will need to sell their private properties within six months of purchasing the HDB flat, but need not serve a wait-out period.

Lee said the wait-out period defers demand from private property owners, slows the momentum of price increases within the HDB resale market, and makes HDB resale flats a relatively affordable option for first-time HDB flat buyers.

However, he acknowledged that older owners may need to sell their private properties and purchase a HDB resale flat in order to strengthen their retirement adequacy.

As such, private property owners above the age of 55 will be exempt from the stipulated wait-out period, if they are looking at purchasing a 4-room or smaller resale flat.

Similarly, private property owners who face genuine housing needs or who have to sell their homes because of extenuating circumstances, such as financial difficulties, can approach HDB for assistance.

Adjusting borrowers' interest rates

With regard to rising interest rates, Lee said further increases are to be expected over the medium term, which will in turn increase borrowing costs for home buyers, as well as the existing cost of home loans that are pegged to floating rates.

In light of this, HDB will introduce an interest rate floor of 3 per cent per annum to compute a borrower’s maximum eligible housing loan amount, which is 1 per cent below the Monetary Authority of Singapore's rate floor for private financial institutions.

Lee said this will reduce the maximum principal for home buyers taking HDB loans but will not increase the monthly instalment borrowers have to pay, as there is no change to the HDB concessionary interest rate of 2.6 per cent.

The medium-term rate floor used under the Total Debt Servicing Ratio and Mortgage Servicing Ratio frameworks to compute a borrower’s maximum loan quantum for residential property loans granted by private financial institutions will also be raised from 3.5 per cent to 4 per cent per annum.

Private financial institutions will continue to determine the rate charged for home loans.

The Loan-to-Value (LTV) limit for HDB housing loans will be lowered from 85 per cent to 80 per cent, so home buyers will borrow prudently in view of the uncertain economic outlook and rising interest rate environment.

However, Lee said this is not expected to affect first-timer and lower- income flat buyers significantly.

Increasing supply

At the same time, Lee said the supply of public and private housing will be ramped up as the government recognises that there is genuine demand from homebuyers.

More BTOs

For starters, there will be 23,000 Build-to-Order (BTO) flats launched in 2022 and 2023 respectively.

This is 35 per cent more that the number in 2021, said Lee, adding that the government is prepared to launch up to a total of 100,000 flats from 2021 to 2025, if necessary.

The government will also endeavour to launch more projects with a shorter waiting time of less than 3 years where possible.

More private homes

The supply of private housing on the Confirmed List of the Government Land Sales (GLS) programme has also been increased by 75 per cent from 2021 to 2022.

Similarly, Lee said the government is also prepared to increase this supply further to meet the demand for private homes, if needed.

Government will continue to monitor situation

Lee capped off his speech saying that the government is committed to keeping public housing inclusive, affordable, and accessible to Singaporeans.

"The government will intervene and do what is necessary to ensure a stable property market, and affordable public housing for Singaporeans."

They will also continue monitor the market and adjust our policies as necessary on both housing demand and supply, to ensure that prices move broadly in line with economic fundamentals.

Top collage left screenshot via CNA, right photo by Danist Soh via Unsplash