Property cooling measures needed to reduce the risk of a destabilising correction in prices: Desmond Lee
SINGAPORE: Measures to cool Singapore's property market are necessary to reduce the risk of a "destabilising correction" in prices that would hurt many households, said National Development Minister Desmond Lee on Thursday (Dec 16).
He said the Government “carefully considered” the timing and scope of the new measures.
"While there is continuing uncertainty created by COVID-19, we have decided to move now to reduce the risk of a self-reinforcing cycle of price increases in the private and HDB resale markets, that will impact housing affordability," Mr Lee said at a media briefing.
Left unchecked, prices are likely to run ahead of economic fundamentals, he added.
The slew of property cooling measures, which kicked in on Thursday, include higher Additional Buyer’s Stamp Duties (ABSD), tighter loan-to-value (LTV) limits and lower Total Debt Servicing Ratios (TDSR).
MARKETS HAVE REMAINED BUOYANT
Despite the economic impact of COVID-19, prices in the private residential and HDB resale markets have risen considerably since the first quarter of 2020, said Mr Lee.
As a result, the House Price to Income (HPI) Ratio in both the private housing and HDB resale markets have been increasing – though they are still below their historical averages now, he said. The HPI measures housing affordability.
“In particular, HPI for HDB resale flats reached 4.4 times in the first three quarters of 2021, which is well below its level a decade ago. However, it is now on a clear upward trend.”
Transaction volumes and demand for Build-To-Order (BTO) flats have also been high due to factors such as shrinking household sizes, a “very low” interest rate environment and recent disruptions to construction works.
All of this has created a “clear upward market momentum in prices and transaction volumes”, despite near-term uncertainty about the pandemic, including the prospect of the Omicron variant spreading here, said Mr Lee.
“Left unchecked, prices are likely to run ahead of economic fundamentals. This will increase the risk of a destabilising correction later on that will hurt many households.”
Borrowers will also be vulnerable to the likely rise in interest rates in the next year and beyond, as major central banks look to tighten monetary policy, he said.
“A combination of rising prices and higher interest rates will risk a significant increase in debt servicing costs for future buyers.”
The cooling measures will thus help to support a “stable and sustainable property market in the medium term”, and ensure that housing stays affordable for Singaporeans, said Mr Lee.
He also stressed that the measures prioritise housing purchases for "genuine owner-occupation", especially among first-time buyers.
WHAT THE MEASURES WILL DO
The increase in ABSD rates will moderate demand from those purchasing properties for investment, he said.
The tightening of the TDSR threshold from 60 to 55 per cent will also do this, “while not overly hindering Singaporeans’ home-ownership aspirations”, said Mr Lee.
“It is also intended to encourage greater financial prudence among home buyers, providing an additional buffer against potential income reductions or interest rate increases.”
He added that the TDSR threshold adjustment is not expected to affect most borrowers buying HDB flats, as about 97 per cent of these borrowers have TDSRs of less than 55 per cent.
While some prospective private housing borrowers would need to “consider right-sizing” their intended purchases and loans, the new threshold would put them “in a better position to service their ongoing mortgage obligations in the medium term”, said Mr Lee.
The tightened LTV limits will also "encourage greater financial prudence" among buyers in the public housing market.
He added that this move is not expected to affect first-timer buyers significantly, especially for lower- to middle-income families, because these households buying a resale flat can get "generous grants" and use their Central Provident Fund (CPF) savings upfront to pay for their flat.
He added that supply in both the private and public housing markets will be ramped up to meet housing demand.
This comes as BTO subscription rates have risen further during the pandemic, despite the increase in supply over the past few years, he said.
BTO supply will be increased, with HDB launching up to 23,000 flats per year in 2022 and 2023 – a 35 per cent increase from the 17,000 flats launched in 2021.
"Looking ahead, we are also prepared to launch up to 100,000 flats in total from 2021 to 2025, if needed. But we will calibrate this based on prevailing demand."
He added that HDB will monitor the progress of current projects to ensure they stay on track.
Supply of private housing will also be increased through the Government Land Sales Programme.
For the first half of 2022, there will be around 2,800 units on the Confirmed List, with another 3,700 units on the Reserve List. This represents a 40 per cent increase for the Confirmed List.
PROMOTING A STABLE HOUSING MARKET
Mr Lee said the supply- and demand-side measures aim to stabilise the market, and ultimately ensure housing affordability.
He added that authorities "recognise the anxieties" of Singaporeans, especially first time buyers, who might be concerned about strong competition for BTO flats and rising HDB resale prices – and the ramped-up supply would address this.
Mr Lee also reiterated that first-time buyers who are Singapore citizens remain exempt from ABSD, and the rise in these rates will "help moderate demand in favour of home buyers".
He also urged all buyers to "exercise prudence" in their purchases.
"This is to ensure households can continue to service their mortgages sustainably over the long-term, against the backdrop of a likely rise in interest rates in the next year and beyond."