New Property Cooling Measures (2022)

On 29 September 2022, close to midnight, the government sprung on us another round of property cooling
measures. This is the first time multiple rounds of property curbs have been implemented in such a short
period – this announcement comes less than a year after the previous round in December 2021. However,
given the pace at which property prices and transaction volumes have been soaring, this was expected.
Last year, the Government tightened the Total Debt Servicing Ratio (TDSR) to 55%, lowered the Loan-to-
Value (LTV) limit of HDB loans to 85%, and increased the Additional Buyer’s Stamp Duty (ABSD) for
Singaporeans and Singapore Permanent Residents buying their second and subsequent properties.

The likely trigger for the cooling measures (in December 2021) was the increase in the number of million-
dollar HDB flat transactions. “The HDB property market underpins the whole residential property market in
Singapore. That’s why the government started with reduced TDSR and lower LTV for HDB-financed loans,”
he said. Nine months on, this remains unchanged. Despite the new curbs put in place in December 2021
– and not to mention, the rising interest rates – the HDB resale market continues to be bullish, setting new
price records every other month or so. From January to August 2022, already 231 HDB flats have changed
hands for $1 million or more. As such, it is no surprise that the new measures most directly impact HDB
buyers in the market.

New Property Cooling Measures (Sep 2022)

Here’s a summary of the measures:

Now, let’s deep dive into the specifics of each new measure, and how they might impact home buyers and
owners.
1. Tightening of Maximum Loan Quantum Limits Through Interest Rate Floors
Due to the increase in market interest rates (as well as the expectation of further increase), the
government has tightened the maximum loan quantum for mortgages. According to the official statement
from MND and HDB, this is "to ensure prudent borrowing and avoid future difficulties in servicing home
loans".
Type of home loan Interest Rate Floor

Bank loans (including financial institutions) 4% (previously 3.5%)

HDB loans 3%

For home loans from banks and financial institutions granted on or after 30 September 2022, the medium-
term interest rate floor used to compute the TDSR and MSR will be increased by 0.5%. It will go up from 3.5%
to 4%. If there is no Option-to-Purchase (OTP), the date of the Sale and Purchase Agreement will be used.
The actual interest rate will still be determined by the lender, this impacts only the computation of TDSR
and MSR, and hence, the final borrowing amount.

"With interest rates rising in 2022 and approaching the 3.5% interest rate levels, it was expected that the
Monetary Authority of Singapore (MAS) would act to increase this base rate within MAS Notice 645. The
impact of this 0.50% increase in floor rate translates to an approximate 5% drop in the budget available
for one’s purchase," said Paul.

For HDB-granted loans, the government introduced a new interest rate floor of 3%. Likewise, this will apply
to all new applications for the HDB Loan Eligibility (HLE) letter received on or after 30 September 2022.
Again, this does not affect the actual HDB interest rate (which stands at 2.6% for now).

2. HDB Loan Loan-to-Value (LTV) Limit Reduced to 80%

One of the key benefits of taking up an HDB loan is that it requires a lower minimum downpayment than
bank loans. However, this gap is closing. In the December 2021 cooling measures, the government lowered
the HDB LTV limit from 90% to 85%. This time, they further slashed it to 80%. This means that in less than a
year, the minimum downpayment for HDB loans has doubled from 10% (before 16 December 2021) to 20%
(30 September 2022 onwards).

This will apply for all new flat applications (HDB BTO, Sale of Balance Flat (SBF), and open booking
exercises), and all complete HDB resale flat applications received on or after 30 September 2022.

3. 15-Month Wait-out Period for private Home owners buying HDB Flats
Finally, the government introduced a 15-month wait-out period for private property owners and ex-private
property owners looking to buy non-subsidised HDB resale flats. Seniors aged 55 and above moving to a
4-room or smaller resale flat will be exempted.

According to the official release, this is specifically to "moderate demand in the HDB resale market". It is
also a temporary measure that will be reviewed.

"Lowering the LTV for HDB loans by 5% and introducing a 15-month wait-out period for private property
downgraders tampers with the bullish HDB market. This will relieve pressure from the market and is likely
to have a significant impact," said Paul.

The increase of the floor rates will impact the most people, but the reduction of the HDB LTV limit to 80%
and the 15-month waiting period will impact the closing of deals most significantly.
Impact of The 2022 Property Cooling Measures on the Singapore Property Market
As with every round of new property curbs, a knee-jerk reaction and slowdown in the market is expected
in the immediate term. This happens as buyers in the market take some time to digest the new regulations,
evaluate how they are affected, and figure out their next best step.

In the short term, the market will cool.

HDB resale flat prices and the high-quantum transactions ($1 million and more) are also expected to slow,
thanks to the increased wait-out period and tighter financial restriction affecting this group. According to
Paul, downgraders (from private property) are likely to be behind many million-dollar HDB resale flat
transactions. With the new measures, they may turn to the private resale market for smaller units, or turn
to the rental market during the new 15-month wait.

Demand may flow into the rental segment.

The possibility of further driving the rental market is an exciting one. As it is, property rental prices are at
record highs, and are expected to continue trending upwards thanks to ongoing construction delays and
the reopening of borders to foreigners.

These measures are unlikely to impact the high-end market.

These new measures are unlikely to affect buyers in the luxury and high-end market who have sufficient
cash and/or capital. "The impact on the high-end market will be limited. The slowing of sales is likely to
be felt on mass market condominium projects that rely on demand from HDB upgraders," said Dr. Lee.

This is quite a big group, considering that over 31,000 HDB flats are expected to fulfill their minimum
occupation period (MOP) this year. Those hoping to cash out on their flats will now have to think twice
about upgrading to a larger HDB resale flat or private property.

What Can We Expect in 2023 and Beyond?

"The impact of the measures in the middle to long term is likely to be dwarfed by the volatile global
economic conditions in 2023 and beyond. Higher interest rate hikes and recessionary pressure will lead to
more caution in discretionary spending and purchasing of homes," said Dr. Tan.
He added that for foreign buyers, these cooling measures may boost confidence among those with strong
wealth preservation motives, as it suggests that Singapore’s residential market is on a sustainable path of
growth.