Analysts expect HDB loan curbs to lower buyers’ expectations

SINGAPORE — The recently-announced Housing and Development Board (HDB) loan curbs will force buyers to live within their means, causing some to scale back expectations, analysts said.

According to the calculations of one property consultancy, the reduction in HDB loan tenure and Mortgage Servicing Ratio (MSR) limits could, in theory, substantially shrink the budgets of first-time buyers of either new or resale HDB flats by up to almost a quarter. However, this was disputed by the Ministry of National Development (MND), which pointed out that the calculations were derived on the assumption that all flat buyers maximise their housing loans.

Still, while it is arguable how much the loan curbs would shrink flat hunters’ budgets, property analysts and Members of Parliament pointed out that the intent of the policy changes was to get buyers to exercise financial prudence and not overstretch themselves.

They reiterated that Build-to-Order (BTO) flats remain affordable but buyers have to adjust their expectations amid the Government’s concerns about overleveraging as interest rate hikes loom.

International Property Advisor Chief Executive Officer Ku Swee Yong said: “All home buyers are moving a notch down. If they were in the market for a five-room flat, they are now looking for a four-room flat to suit their budget.”

Nee Soon GRC MP Lee Bee Wah noted that “what is reduced is not spending power from earned income, but the loans that can be taken”.

Marine Parade GRC MP Seah Kian Peng added: “It’s (about) ensuring better management of finances so that people do not end up making poor decisions with their finances.”

Last week, the MND and the HDB announced the reduction of the maximum loan tenure from 30 years to 25 years, and MSR limits from 35 per cent to 30 per cent of the borrower’s gross monthly salary. At the same time, the Special CPF Housing Grant (SHG) was extended to the purchase of four-room flats and the qualifying household monthly income ceiling was raised to S$6,500.

According to property consultancy OrangeTee, after taking into account the extension of the SHG, first-time buyers’ budgets across various income groups will be reduced by between 16 and 24 per cent.

The calculations were based on assumptions that the first-time buyers maximised their housing loans — in other words, they borrow a sum that is 90 per cent of a flat’s price — and that the HDB interest rate for its concessionary loans is 2.6 per cent.

Based on these calculations, a family with a household monthly income of S$5,000 would see a S$100,000 cut in their budget — an amount that could mean the difference between a three-room and a four-room BTO flat in Bukit Merah under July’s BTO exercise, for instance. For the higher-income groups, the reduction in budget could be as much as over S$200,000.

On the assumption that buyers take the maximum loan, Ms Christine Li, Head of Research and Consultancy at OrangeTee, said that this is what many buyers do initially, even though they would typically reduce the loan quantum subsequently after they have saved up some money.

However, an MND spokesperson yesterday described this assumption as “unrealistic” and “highly misleading”.

“Flat buyers typically do not maximise their housing loans. For those who do, it could be imprudent, as the current low interest rate environment is not sustainable,” she said.

“Even as the Government plays a bigger part to help share the housing burden of the people, individuals must also play their part by being financially prudent and not spending beyond their means.”

The spokesperson reiterated that the reduction in the maximum loan amount “will not affect the majority of flat buyers, since most do not max out their loans in their flat purchases. It is intended to guard against overstretching”.

She stressed the Government’s commitment to “provide affordable public housing to Singaporeans”.

“We have moved decisively to help more Singaporeans own their homes over the past two years,” she said, citing the record number of new flats rolled out, the delinking of BTO prices from the resale market and the introduction and enhancement of the SHG, among other things.

Nevertheless, analysts said the loan curbs could dampen overall demand for resale HDB flats, and cause Cash-over-Valuation premiums to fall further. Chris International Director Chris Koh said: “(Sellers) have to be realistic in their asking price ... gone are the days of high COVs.”