The government of Singapore has not shied away from enacting cooling measures to rein in the city-state's escalating housing costs, but for what appears to be the first time, it has now focused on the Housing and Development Board (HDB) resale market. According to OrangeTee & Tie, this is anticipated to result in a "knee-jerk reaction" from the public housing market.
Singapore raised the Additional Buyer's Stamp Duty (ABSD) on private residential properties at the end of 2021, which decreased the number of investment sales. This time, the government cut the loan-to-value limits (LTV), tightened the Total Debt Servicing Ratio (TDSR), and tightened the Mortgage Servicing Ratio (MSR), all of which may have an effect on housing affordability.
According to Christine Sun, Senior Vice President of Research & Analytics at OrangeTee & Tie Pte Ltd., "this can be considered to be one of the most significant rounds of cooling measures imposed on the public housing market, and we can expect a stronger market reaction when compared to previous measures."
The prices of HDB resale flats have been steadily increasing over the past two years, according to Sun, who also claimed that the industry had anticipated the cooling measures aimed at public housing. OrangeTee stated in a report that there are indications the market may be "overheated" with apartments selling for $1 million or more.
Why do prices for residential sale/resale continue to rise, and at a much faster pace?
Due to delays in building new apartments during the epidemic, prices for HDB resale properties were rising. Many young couples turned to the resale market since they couldn't wait for the lengthy new apartment construction process. Additionally, as private resale prices have increased and many people look to profit from their investments, many private homeowners have sold their properties over the previous year. They then purchased resale apartments to use as their new residences. As a result, the price of HDB resale flats significantly increased as a result of the increase in demand.
The price surge in the private residential market was mostly caused by a significant increase in condo prices, particularly in the suburbs. The median price of new condos increased last quarter by roughly 18% to about S$2,100 per square foot. In Q3 of this year, more than 900 new residences were sold for at least S$2,000 per square foot, with 21 of them going for more than S$2,400.
Tell us more about the new round of cooling measures. What will it change?
The current round of cooling measures will have a greater impact on the public housing market, especially since several measures have been put in place, such as raising the interest rates used to calculate the TDSR and MSR and lowering the LTV ceilings, which will all have an impact on buyers' affordability because they will be able to borrow less and pay for new homes out of pocket.
Additionally, there will be a 15-month waiting time before private homeowners may purchase HDB apartments. The premium segment of the HDB resale market would be impacted by this measure. The new rule will probably cause some of these customers who do not want to wait as long to return to the private market or acquire smaller resale flats. This might increase interest in the private resale market. Due to the 15-month wait-out term, private homeowners who still want to buy a HDB resale property could have to rent one in the interim. The rising demand for rentals could raise current rents even further.
Given that the adjustment has already been made, the tightening of TDSR may not have a significant impact on the private home market.
Due to the smaller modification this time around, the impact is not likely to be as significant as it was during the first round of TDSR. Since many wealthy people may not need to borrow or may be able to use money from other investments to pay their mortgages, the luxury market may not be overly harmed.
In Orangetee's commentary, it was mentioned that there may be a "significant knee-jerk reaction" as this is the first time Singapore implemented cooling measures covering the public housing market. Tell us more about how the public housing market is expected to react.
We may anticipate a bigger market response to this round of cooling measures than to prior ones because it is one of the most substantial rounds ever imposed on the public housing market.
The public housing market was mainly exempt from the cooling measures that were put in place in December 2021 because they were more focused on the private residential market. As a result, HDB resale prices kept going up, especially once the pandemic and lockdowns were over. Some consumers may have already overstretched their financial resources while buying these flats because more people are paying record prices around the island and more transactions are S$800,000 and above.
Housing affordability for buyers will be impacted by the tightening of TDSR and MSR as well as the lowering of LTV limitations. As a result, some people might choose smaller or less expensive apartments. There will probably be a brief drop in demand for large apartments, which could lead to a price adjustment in the upcoming months because some private homeowners will have greater difficulties buying resale units. Large flat dwellers, in particular, may encounter greater challenges when trying to sell their homes in the near future.
When will the market start to see prices go down?
Sales volume may experience a more rapid impact and drop by more than 10%, particularly for large apartments. The fourth quarter may see a slowdown in price growth. For Q4 2022, we project that price growth could range from -2% to 0%.
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