Cooling down Singapore’s HDB market as flat prices ‘overheat’ to a million 

Slow down in price growth may be felt by the fourth quarter of the year, OrangeTee said.

Singapore has not held back in imposing cooling measures to tame rising home prices, but in what seems to be the first time, the government implemented a new round that will zero in on the Housing and Development Board (HDB) resale market. This is expected to trigger a “knee-jerk reaction” from the public housing market, OrangeTee & Tie said.

In end-2021, Singapore increased the Additional Buyer’s Stamp Duty (ABSD) on private residential properties, leading to a decline in investment sales. This time the government tightened the Total Debt Serving Ratio (TDSR) and the Mortgage Servicing Ratio (MSR) as well as reduced the loan-to-value limits (LTV), which could impact housing affordability.

“This can be considered to be one of the most significant rounds of cooling measures imposed on the public housing market, and we can expect a stronger market reaction when compared to previous measures,” OrangeTee & Tie Pte Ltd. Senior Vice President of Research & Analytics Christine Sun told Real Estate Asia. 

Sun also said that the industry already expected the cooling measures targeted on public housing as prices of HDB resale flats have continued to climb in the past two years. In a report, OrangeTee noted there are observations the market may be “overheated” with flats being sold for a million dollars.

Why do prices for residential sale/resale continue to rise, and at a much faster pace? 

For the HDB resale market, prices continued to rise because there were construction delays for new flats during the pandemic. Many young couples who could not wait for the long completion period of new flats turned to the resale market. Moreover, many private homeowners have sold their homes over the past year as private resale prices have risen and many seek to cash out on their investments. They subsequently bought resale flats as their replacement homes. Therefore, the increase in demand pushed up the prices of HDB resale flats substantially.

For the private residential market, the price growth was mainly driven by a big increase in condo prices especially those in the suburbs. There was a spike in median prices of new condos last quarter, which rose about 18% to around S$2,100 per square foot. More than 900 new homes were sold for at least S$2,000 psf in Q3 this year, 21 of which were above S$2,400 psf. 

Tell us more about the new round of cooling measures. What will it change?

The current round of cooling measures will have more impact on the public housing market especially since several measures are implemented such as the increase of interest rates used for the computation of the TDSR and the MSR and reduction of the LTV limits which will all affect the affordability of buyers since they will be allowed to borrow less and will use more cash to purchase a new home.   

There will also be a 15-month wait-out period for private homeowners purchasing HDB flats. This measure will impact the upper tier of the HDB resale market. By imposing the new ruling, some of these buyers who do not wish to wait for so long will likely turn back to the private market or purchase smaller resale flats. This may drive up demand for the private resale market. Private homeowners who still wish to purchase an HDB resale flat may need to rent a unit in the interim because of the 15-month wait-out period. The increased rental demand may push current rental prices even higher.

The tightening of TDSR may not have a significant impact on the private residential market as the adjustment has already been widely expected since interest rates have been climbing.

The impact is not likely to be as deep as the first round of TDSR as the adjustment is not big this time round. The luxury market may not be too affected since many high-net-worth individuals may not need to borrow or can redeploy funds from other investments to pay their home loans.

In Orangetee's commentary, it was mentioned that there may be a "significant knee-jerk reaction" as this is the first time Singapore implemented cooling measures covering the public housing market. Tell us more about how the public housing market is expected to react.

This can be considered to be one of the most significant rounds of cooling measures imposed on the public housing market, and we can expect a stronger market reaction when compared to previous measures. 

The cooling measures implemented in December 2021 were more targeted at the private residential market, and the public housing market was largely spared then. As a result, HDB resale prices continued to rise especially after we emerge from the pandemic and lockdowns. With more people paying record prices across the island and more transactions crossing S$800,000 and above, some people may already be overstretching their finances when they purchased these flats.

The tightening of TDSR and MSR, together with the lowering of the LTV limits will have an impact on buyers' housing affordability. Therefore, some people may opt for smaller or cheaper flats. Since some private homeowners will face bigger hurdles in purchasing resale flats, there will likely be a temporary pull-back in demand for large flats which may result in a price correction in the coming months. Homeowners especially those living in large flats may face more headwinds selling their flats in the near term. 

When will the market start to see prices go down?

We may see a more immediate impact on sales volume which may fall by more than 10%, especially for large flats. Price growth may slow down in the fourth quarter. We anticipate that price growth may be between 0 and -2% for Q4 2022.