New HDB loan limit: Will it affect resale flat prices? Analysts weigh in

In the latest round of property cooling measures, the government announced on Monday (Aug 19) night that the maximum loan that home buyers can take from the Housing and Development Board (HDB) will be lowered from the next day. 

Speaking to reporters on Tuesday (Aug 20), National Development Minister Desmond Lee said that the move - which reduces the loan-to-value (LTV) limit from 80 per cent to 75 per cent - will encourage more prudent borrowing and dampen demand at the higher end of the HDB resale market.

Lee said his ministry has observed that buyers who take loans at higher LTV ratios "disproportionately" buy larger flats and pay higher prices, which in turn contribute to the overall higher prices in the HDB resale market.

The minister also noted that in the last one-and-a-half years, million-dollar flats make up only about two per cent of all transactions.

"The problem is that this has caused Singaporeans to be concerned about the affordability of resale flats as a whole," Lee said about this apparent "market psychology".

"If we are not careful, such market dynamics can cause the resale market to run out of line with economic fundamentals and cause a bubble."

'Welcome reprieve'

Joel Lim, associate head of research at 99.co, told AsiaOne that this property cooling measure is a "welcome reprieve" from the surging public housing resale prices.

Resale prices in the first half of this year rose to four per cent which was driven by a strong, broad-based demand, according to the Ministry of National Development (MND) and HDB.

Meanwhile, Mohan Sandrasegeran, head of research and data analytics at Singapore Realtors Inc, believed that the effects from the adjustment to the LTV limit will be "significant".

"With a tighter borrowing limit, buyers are encouraged to manage their finances more conservatively, potentially reducing the risk of market overheating," he said, adding he sees resale prices stabilising by the end of the year.

Cooling measures 'no difference' to some buyers: Analyst

In his media briefing on Tuesday, Lee said that the vast majority of buyers with HDB loans will not be affected, with almost nine in 10 home buyers borrowing at LTV ratios of 75 per cent or less.

The minister added that the increase in the Enhanced CPF Housing Grant (EHG) will help lower- to middle-income households mitigate the impact of the lower LTV. The EHG will be increased to up to $120,000 for families and $60,000 for singles.

"[The lower LTV limit] will in turn have a knock-on effect of stabilising the rest of the resale market," said the minister. "But let's watch and monitor the impact of these measures on the overall resale market."

However, several property analysts told AsiaOne that the cooling measures - in its fourth round since Dec 2021 - will have a minimal impact on resale prices in the long run.

Lee Sze Teck, senior director of data analytics at Huttons, said the resale demand may slow temporarily in the near term as buyers take stock of the new measures.

"But over time, demand will return and prices will continue to rise," he added.

Lee said that an estimated 7,000 BTO flats will reach their minimum occupation period (MOP) next year, which is lower than the estimated 12,000 flats.

"HDB resale prices may continue to rise in 2025," said Lee, adding that "there is a possibility" of more gains in the prices of two-room and three-room resale flats.

As for four-room and larger flats, he said most buyers do not see an increase in grants and utilise a bank loan for their purchase.

This means that the latest cooling measures are of "no difference to them".

"As [there is] a lower supply of newly MOP 4-room and 5-room flats, the prices are likely to continue to increase," Lee added.

Heikal Shafrudin, co-founder of Herohomes, believes that there will be a slight dip in transaction volumes as buyers and sellers adjust to the new financing constraints.

But this will be temporary as buyers will recalibrate their budgets and continue with their purchasing plans, he said.

ALSO READ: HDB loan limits to be lowered to cool property market; larger grants for lower-income flat buyers

chingshijie@asiaone.com