Tighter loan limits could feed demand for smaller flats, raise rentals further, curb overall buying
Tighter loan limits could feed demand for smaller flats, raise rentals further, curb overall buying. According to market observers, tighter loan limitations established late last night will reduce homebuyers’ buying power and put a strain on affordability. This could result in greater demand for smaller units, particularly resale 4-room HDB flats, as well as higher rental rates and a slowdown in private property demand.
“Overall, the new rules create market frictions and would likely slow resale HDB price growth,” said Wong Xian Yang, Cushman & Wakefield’s Singapore head of research. However, given the consistent underlying housing demand, low unemployment rates, and an anticipated shift in demand from the private market, HDB price growth could remain positive in the fourth quarter of 2022, albeit at a much slower pace than in previous quarters.
“Aside from immediately chilling the HDB resale market, these measures will indirectly cool the private residential market by reducing the pool of HDB upgraders profiting from higher HDB prices,” Colliers’ Catherine He said. As a result, because this segment is most reliant on upgraders, mass market projects may be the most affected. Buyers with a large amount of cash, such as high-net-worth individuals, will be less affected because they will require less financing.” Because the new loan limits did not apply solely to residential property, he stated that “non-residential property likely to be most affected by the latest measures would be commercial properties purchased by individuals for investment – these include shophouses, strata office and retail units, as well as smaller industrial properties.”
To ensure prudent borrowing and moderate demand, the government raised the medium-term interest rate floor used to determine the Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR) for real estate by 0.5 percentage point starting today. It is presently 4% for residential properties and 5% for commercial properties.
The permitted loan amount for borrowers seeking HDB loans for public housing will be calculated using a 3% interest rate floor, while the Loan-to-Value (LTV) cap for HDB housing loans will be cut from 85% to 80%.
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