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 most recent set of property cooling rules is an unavoidable and necessary step toward preventing overleveraging.
With rising interest rates and a dismal economic outlook, both the Housing Board resale and private property markets are showing signs of overheating. The recalculation of the 3.5 percent medium-term interest rate floor used to compute the total debt servicing ratio (TDSR) came as no surprise, considering that mortgage rates have already reached 3% in recent months and, if uncorrected, will increase borrowers’ financing risks.
But, given that million-dollar flat sales accounted for only 1.4 percent of total HDB resale transactions as of September 30, are the new limits, which most analysts think are primarily geared at the HDB market, too draconian? Given the rate at which interest rates have climbed, analysts forecast a small increase in the medium-term interest rate floor from 3.5 percent to 4% per year. The Monetary Authority of Singapore would raise by 0.5 percentage point the medium-term interest rate floor used to compute the TDSR and mortgage servicing ratio (MSR) for private lender property loans.
The TDSR is the portion of a borrower’s gross monthly income that goes toward repaying all monthly debt obligations for private home purchases, whereas the MSR is the portion that goes toward repaying all property loans for HDB purchases. Despite its small size, this could affect private home sales as buyers assess their options and calculate their expenditures. “It may have a higher impact on the sale of new executive condominiums (EC) because EC buyers face a steeper MSR of 30% under the TDSR, as opposed to 55% for private house buyers,” said Mr Ismail Gafoor, CEO of PropNex Realty.
The inclusion of a 3% interest rate floor in the calculation of the HDB concessionary loan amount is designed to control the rise in resale flat prices. The loan-to-value ceiling for home loans will be cut to 80% from 85% in December 2021, down from 90%. A 15-month waiting period for current and previous private house owners to purchase a non-subsidised HDB resale property has been imposed in aim to restrict demand for such flats, in addition to tightening home loan limits. They could previously buy a HDB resale apartment on the open market if they sold their private properties within six months of the purchase.
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