Remarks by Minister Desmond Lee on property market measures on 30 September 2022

Sep 30, 2022

Hello everyone.

Late last night, MAS, MND and HDB announced a series of property market measures. These took effect today, 30 Sep 2022. 

Let me give the context, and provide some details about the measures that we have just implemented.

First, let me talk about the impact of interest rates.

From 2013 to 2021, we enjoyed exceptionally low interest rates, especially from private financial institutions, with introductory rates for new housing loans hovering around 2%.

But over the last year, market interest rates have risen significantly. For home loans offered by banks, we see that interest rates have gone up quite a bit. Indeed, the 3-Month Compounded Singapore Overnight Rate Average (SORA) – and this is a common market benchmark for mortgages – it has risen from about 0.3% in endMarch to close to 2% in end-Sept this year. This will increase borrowing costs for those who are buying a home, and for those who are servicing existing home loans that are pegged to floating rates. 

We have therefore decided to make some moves to better protect home buyers. This will help them avoid difficulties in servicing their long-term home loans, as we think mortgage interest rates are likely to rise further in future, along with US interest rates.

We will do this by tightening the maximum amount that can be taken for home loans. How are we going about doing this?

First, we will require private financial institutions, as well as HDB, to assume higher interest rates when assessing a borrower’s ability to repay.

For home loans granted by private financial institutions such as banks, MAS will raise the medium-term interest rate floor that is used to compute the Total Debt Servicing Ratio (TDSR) and the Mortgage Servicing Rate (MSR).

Currently, banks assume a floor rate of 3.5% per annum, and this will go up to 4% per annum.

To be clear, the actual rates that private financial institutions charge for home loans will continue to be determined by them. But in deciding how much they can give as a loan, they will need to use the higher of this rate floor set by MAS or the interest rates that they are expected to charge.

Who does this apply to?

• This will apply to borrowers who take up new property loans from financial institutions from 30 Sep 2022, to purchase HDB flats or private properties.

• Borrowers who are refinancing their loans for owner-occupied property will not be affected by this change. 

How does this help? The higher floor rate ensures that today's borrowers take loans that reflect the likelihood of rising interest rates, so they are better able to service their loans over the years.

Turning to HDB loans, HDB will similarly introduce an interest rate floor, to compute how much a borrower is eligible to borrow to buy an HDB flat. This will be set at 3%, which is lower than that set by MAS.

Again, to be clear, there is no change to HDB’s actual concessionary interest rate, which will remain unchanged at 2.6% per annum. 

Who does this apply to?

• This will apply to prospective flat buyers who submit a fresh application for HDB Loan Eligibility, or HLE letter from 30 Sep this year. Their loan amount will be subject to this new interest rate floor, even though the HDB concessionary interest rate remains unchanged.

• Those who already have an HLE letter will not be affected.

• Those who have an existing HLE application that was submitted before this date will not be affected.

• Those currently servicing their HDB loans will also not be affected.

The second move that we are making is to lower the Loan-to-Value or LTV limit for HDB loans. The LTV limit determines the maximum loan amount that you can borrow from HDB to finance your home purchase. Previously, it was 85%. From today, it will be lowered to 80%.

Who will this apply to?

• Those applying for Build-To-Order (BTO) flats, Sales of Balance Flats and Open Flat Selection exercises from 30 Sep onwards.

• This means that those who had applied and balloted for a flat in sales exercises before 30 Sep, will not be covered, even if they have not yet selected and booked a flat under those previous exercises.

• For resale purchases, this will apply to completed resale applications which are received by HDB from 30 Sep onwards. 

We are making this move to ensure that flat buyers borrow prudently and do not overstretch themselves. This helps reduce the risk of them facing future difficulties in servicing their home loans amidst the uncertain economic outlook and rising interest rate environment.

Some people may be concerned if this places a larger burden on first-time and lower income families who are seeking a new home. This is not the case. This move is not expected to affect first-timer and lower income home buyers significantly as they may receive housing grants of up to $80,000 when buying a subsidised flat directly from HDB, or up to $160,000 when buying a resale flat, and they can tap on their CPF savings to pay for the flat purchase.

Next, let me cover the measure to moderate demand for HDB resale flats

Since the Government implemented the broad package of cooling measures in December 2021, housing prices have continued to increase with a clear upward momentum, especially in the HDB resale market.

In the first half of this year, HDB resale prices rose by more than 5.0%.

This has caused anxiety about housing affordability, especially for young families who are looking to buy their first home.

This buoyant housing market reflects strong, broad-based demand, and is driven by a number of key factors:

First, we have seen more marriages over the past year, especially with the easing of COVID-19 measures.

Second, our average household sizes have been getting smaller as more young couples, singles and parents with adult children choose to buy their own homes instead of living together.

Third, more homebuyers have turned to the resale market due to the disruptions in the construction sector caused by COVID-19, which have impacted BTO and private projects alike. 

Housing is important for Singaporeans, and rising home prices have been a concern. We understand your concerns and have been carefully monitoring the market.

As such, we have implemented measures to moderate demand, and ensure that HDB flats continue to remain affordable.

We will therefore impose a wait-out period of 15-months for owners or former owners of private residential property, before they can buy a non-subsidised HDB resale flat.

Now, allow me explain the rationale for this move:

Currently, private residential property owners who are looking to buy a nonsubsidised HDB resale flat do not have serve a wait-out period. But they will need to sell their private properties within six months of the HDB flat purchase.

Private residential property owners generally have more means to buy resale flats, when compared to first-time home buyers or existing HDB flat owners. Some may not even need to take loans to complete their purchase. They therefore tend to pay higher amounts of cash-overvaluation (COV) when they buy resale flats.

This new wait-out period of 15-months will moderate demand for HDB resale flats and keep them affordable, especially for first-time home buyers who may have more pressing housing needs.

We intend for this measure to be temporary. We will review this, depending on overall demand and market changes. 

At the same time, we do recognise that some seniors may have retired or are preparing to retire, and want to sell their private residential property and move to a HDB flat, to strengthen their retirement adequacy. We will therefore exempt seniors and their spouses who are 55 years old and above from this 15-month wait-out period, when they move from their private property to a 4-room or smaller resale flat.

We will also make exemptions for those with genuine housing needs or those who face extenuating circumstances, regardless of their age. But they should approach HDB for assistance, and my colleagues will see how best to support them on a case-by-case basis.

Over and on top of these latest measures to moderate demand and ensure affordability of HDB resale flats, we are continuing to ramp up our supply of BTO flats to meet strong demand.

We recognise that Singaporeans, especially first-time homebuyers, are concerned about strong competition for BTO flats and longer waiting times.

We are on track to launch up to 23,000 flats this year, and another 23,000 flats next year.

In fact, in our November HDB BTO sales launch this year, we will be launching more than 9,000 new homes.

We are ready to launch up to 100,000 flats in total from 2021 to 2025, if needed.

Median waiting time for BTO projects over the next two years is expected to be 4 to 4.5 years.

And over time, we will launch more shorter waiting time BTO flats.

We have also ramped up private housing supply.

Supply on the Confirmed List of the Government Land Sales (GLS) Programme has increased by 75% from 2021 to 2022.

We are prepared to increase supply further to meet demand for private homes, if needed.

The Government remains committed to keep public housing inclusive, affordable and accessible to Singaporeans. We will continue to monitor the property market and ensure that they remain relevant and in line with economic fundamentals.