Larger HDB resale flats to bear brunt of new property cooling measures; may drive up rents
Larger HDB resale flats to bear brunt of new property cooling measures; may drive up rents. The newest round of property cooling regulations is a necessary and unavoidable step to prevent overleveraging.
With rising interest rates and a bleak economic outlook, there are already symptoms of overheating in both the Housing Board resale and private house markets. The recalibration of the medium-term interest rate floor of 3.5 percent used to compute the total debt servicing ratio (TDSR) came as no surprise, given that mortgage rates have already surpassed 3% in recent months and, if left uncorrected, will raise borrowers’ financing risks.
But, given that headline-grabbing million-dollar flat sales accounted for only 1.4 percent of total HDB resale transactions as of September 30, are the new rules, which most analysts agree are aimed primarily at the HDB market, too draconian? Analysts predict a minor increase in the medium-term interest rate floor from 3.5 percent to 4% each year, considering the rate at which interest rates have risen. The Monetary Authority of Singapore will boost the medium-term interest rate floor used to calculate the TDSR and mortgage servicing ratio (MSR) for property loans made by private lenders by 0.5 percentage point.
The TDSR, which applies to private home purchases, is the portion of a borrower’s gross monthly income that goes toward repaying all monthly debt obligations, whereas the MSR, which applies to HDB purchases, is the portion that goes toward repaying all property loans. Despite its modest size, this could have an impact on private home sales as buyers weigh their options and calculate their costs. “It may have a greater impact on the sale of new executive condominiums (EC) because EC buyers are subject to a stiffer MSR of 30%, as opposed to 55% for private house buyers under the TDSR,” said Mr Ismail Gafoor, CEO of PropNex Realty.
The implementation of a 3% interest rate floor for calculating the HDB concessionary loan amount is intended to limit the rise in resale flat prices. After being reduced from 90% in December 2021, the loan-to-value limit for house loans will be reduced to 80% from 85%. In addition to tightening home loan limitations, a 15-month waiting time for current and former private house owners to purchase a non-subsidised HDB resale property has been enforced in order to control demand for such flats. They were previously permitted to purchase a HDB resale apartment on the open market if they sold their private properties within six months of the acquisition.
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