SINGAPORE — The lowering of the maximum loan that home buyers can take from the Housing and Development Board (HDB) is aimed at encouraging more prudent borrowing and dampening demand at the higher-end of the public housing resale market, said National Development Minister Desmond Lee on Tuesday (Aug 20).

“(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.”

The minister was speaking to reporters after the authorities late on Monday announced a tightening in the loan-to-value (LTV) limit for HDB housing loans. 

From Aug 20, the LTV limit will be lowered to 75 per cent, meaning that buyers will be allowed to borrow less than before — up to 75 per cent of the flat value compared with 80 per cent before. 

This brings the HDB loan limit in line with mortgages from financial institutions, which remain unchanged at 75 per cent.

Mr Lee said the move will not affect the vast majority of HDB housing loan takers, as almost nine in 10 home buyers are borrowing at LTV ratios of 75 per cent or less.

The remaining 10 per cent were taking up HDB loans exceeding 75 per cent and up to 80 per cent of their flat value. 

This figure is “not insignificant”, the minister said.

“That 10 per cent disproportionately buy the larger flat types, which drive up the overall market… They also disproportionately pay much higher prices,” he said, adding 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 lowering of the LTV limit) seeks to be a cooling measure in that by tackling the higher-end of the HDB resale market, we are seeking to moderate some of the prices that have an impact on the overall market,” said Mr Lee.

The latest measures mark the fourth round of cooling measures since 2021.

The government noted that earlier rounds of cooling measures and the ramped-up BTO flat supply have helped to moderate resale price increases. However, resale prices in the first half of this year rose by more than 4 per cent, driven by strong, broad-based demand.

Mr Lee said this demand was seen across “all buyer groups”, partly 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. 

In addition, the market is seeing “some tightness” in the supply of resale flats as fewer flats reached their minimum occupation period this year.

There is also “market psychology” at work, Mr Lee said, citing instances of resale HDB flats hitting record prices making the headlines. However, such HDB flats that command very high resale prices make up only “a very small proportion of all transactions”.

In the last one and a half years, flats that cross the million-dollar mark made up about 2 per cent of all resale transactions, the minister said. These are mostly maisonettes, executive apartments, jumbo flats or five-room flats in very good locations, high floors or with very long remaining leases.

For four-room and smaller flats, those that command high prices are predominantly located in HDB estates in or very near to the city center. They are also typically well served by transport options and comprehensive amenities, as well as being located on very high floors with good views. 

Mr Lee said such transactions make up 0.5 per cent of all four-room or smaller flats transacted in the last two years.

“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.”

The minister said if not careful, such market dynamics can cause the resale market to run ahead of economic fundamentals and “cause a bubble”. 

He added that with the property market being historically cyclical, those who buy at higher prices with larger loans will be the hardest-hit when the market cools. 

“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,” said Mr Lee.

Separately, the government also announced more financial support for eligible first-time flat buyers, especially those from the lower-income groups

Currently, the Enhanced Central Provident Fund (CPF) Housing Grant gives a maximum of S$80,000 in grants for families and S$40,000 for singles buying their first new or resale flat.

This will go up to S$120,000 and S$60,000 respectively.

"This is a significant increase from what we provided previously, and will help first-time home buyers afford their first home," Mr Lee said.

On whether the grants could introduce an unintended impact on market demand, the minister said the grant is "means tested", with grant amounts being progressive.

"We have tiered the increase so that lower-income buyers will receive more support. This will ensure that those in need will receive more help without inadvertently driving up the wider market," he said. CNA