Singapore’s Housing & Development Board (HDB), Ministry of National Development (MND) and Monetary Authority of Singapore (MAS) announced on the late night of 29 Sep 2022 a fresh set of property cooling measures, which will come into effect from 30 Sep 2022. We believe the focus was mainly targeted at the resale public housing market, although there would also be some impact on the private residential property segment. Overall, we believe demand for HDB upgraders could be curtailed, and while we expect a moderation in residential property price growth ahead, we are maintaining our forecast for Singapore’s private home prices to increase 6-8% in 2022. This is because the impact of the latest property tightening measures will mostly only be felt from 4Q22, and we expect private home price appreciation to be robust in 3Q22 given the firm selling prices of recently launched projects.
One of the latest property cooling measures comes in the form of an increase in the medium-term interest rate floor used by private financial institutions to compute a borrower’s Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) by 0.5 percentage points (ppt). The medium-term interest rate for residential property purchase loans and mortgage equity withdrawal loans will be the higher of a 4% per annum (p.a.) floor, versus 3.5% p.a. previously, or the thereafter interest rate, which is defined as the highest possible interest rate applicable during the tenure of a property loan, excluding introductory or promotional rates. The higher medium-term interest rate floor is aimed at ensuring homebuyers borrow prudently for their property purchases amid a higher interest rate environment, given that property loans are long-term commitments and usually a household’s largest liability. This measure will apply to purchases of properties where the Option to Purchase (OTP) is granted on or after 30 Sep 2022. Another change in policy was the lowering of the Loan-to-Value (LTV) limit for HDB housing loans from 85% to 80%. This will apply to new flat applications for sales exercises launched and complete resale applications which are received by HDB on or after 30 Sep 2022. According to the government agencies’ press release, this change is not expected to significantly affect first-time homebuyers and lower-income flat buyers, as they may be able to obtain housing grants and are also able to tap on their CPF saving to pay for their flat purchase. As the revised LTV limit does not apply to loans granted by private financial institutions, which will remain at 75%, we do not expect any impact to the private residential property segment. Given the uptrend in the HDB Resale Index, MND and HDB also decided to introduce a wait-out period of 15 months for private residential property owners (PPOs) and ex-PPOs to buy a non-subsidised HDB resale flat.
The FTSE ST All-Share Real Estate Investment and Services Index (FSTREH) initially opened 0.9% lower on 30 Sep 2022 but subsequently recovered its losses intraday. We believe the changes to the medium-term interest rate floor for the computation of TDSR was largely anticipated by the market. Furthermore, the FSTREH is trading at a forward price-to-book (P/B) multiple of 0.50x (as at 29 Sep 2022 close), which is 1.1 standard deviations below the 10-year average (0.65x)
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