HDB loan limits tightened in latest cooling measure to curb high-end resale market, says National Development Minister Desmond Lee

The Singapore government has announced a new round of property cooling measures, focusing on reducing the maximum loan that home buyers can obtain from the Housing and Development Board (HDB). This move, aimed at promoting more prudent borrowing and stabilizing the resale market, was detailed by National Development Minister Desmond Lee on Tuesday.

Speaking to reporters after the announcement on Monday evening, Mr Lee explained that the tightening of the loan-to-value (LTV) limit for HDB housing loans is designed to temper demand at the higher end of the public housing resale market. Effective from 20 August, the LTV limit has been lowered from 80 per cent to 75 per cent, bringing it in line with mortgages offered by financial institutions.

“This will in turn have a knock-on effect of stabilising the rest of the resale market, but let's watch and monitor the impact of these measures on the overall resale market,” Mr Lee said.

The adjustment in the LTV limit is not expected to significantly impact the majority of HDB loan applicants. According to Mr Lee, nearly 90 per cent of home buyers are already borrowing at LTV ratios of 75 per cent or less. However, the change targets the remaining 10 per cent who take up loans exceeding 75 per cent, often to purchase larger, higher-priced flats.

“That 10 per cent disproportionately buy the larger flat types, which drive up the overall market … They also disproportionately pay much higher prices,” the minister noted, highlighting that the median transaction prices for this group can be S$20,000 to S$60,000 higher than others, depending on the flat type.

The move, part of the fourth round of cooling measures since 2021, seeks to moderate prices in the higher-end of the HDB resale market, which has seen significant increases despite previous measures and a ramp-up in Build-To-Order (BTO) flat supply. In the first half of 2024 alone, resale prices rose by over 4 per cent, driven by robust demand across all buyer groups.

“This demand is supported by strong income growth over the last few years and the increase in property prices, which means more second-time home buyers are turning to the HDB resale market to meet some of their upgrading needs,” Mr Lee explained. He also pointed out that fewer flats reaching their minimum occupation period this year has contributed to a tightening in the resale supply.

The minister also addressed the market psychology, citing the impact of resale flats hitting record prices in the news. Although flats that cross the million-dollar mark represent only about 2 per cent of all resale transactions, they have a disproportionate influence on market perceptions.

“But the problem is that this has caused Singaporeans to be concerned about the affordability of resale flats as a whole,” he said. “Flat sellers who are reading such news raise their expectations about how much their flat could bring, while flat buyers become anxious to secure flats before prices get higher.”

To mitigate the risk of a market bubble, the government is focusing on dampening demand and encouraging more cautious borrowing, while also continuing to increase the supply of flats. “This is why we are moving now to dampen demand and encourage prudent borrowing, even as we continue to inject supply at a steady pace to meet demand,” Mr Lee stated.

In a related announcement, the government introduced enhanced financial support for first-time flat buyers, particularly those from lower-income groups. The Enhanced Central Provident Fund (CPF) Housing Grant will increase from S$80,000 to S$120,000 for families, and from S$40,000 to S$60,000 for singles purchasing their first flat.

"This is a significant increase from what we provided previously and will help first-time home buyers afford their first home," Mr Lee said. He added that the grants are means-tested, with a tiered increase to ensure that lower-income buyers receive more substantial support without inadvertently driving up market demand.

Commenting on the recent measures, Ku Swee Yong, Key Executive Officer of International Property Advisor Pte Ltd and a property expert, wrote on his Telegram channel: "Giving more and more grants WORSENS, not lessens, the housing affordability challenges. It will exacerbate retirement adequacy issues down the road as the grants are paid through CPF."

He added, "Over the last two decades, we have seen how additional grants (and the raising of income ceilings) have contributed to higher and higher HDB resale prices, forcing families to take on larger loans and pay more in interest expenses, thereby reducing CPF savings for retirement. The correct approach is to tighten eligibility and reduce financial burdens for young families by pricing BTO flats LOWER, instead of pricing BTOs high and providing more grants."