Singapore has introduced new measures aimed at curbing the surging prices of public housing, a move spearheaded by Prime Minister Lawrence Wong to address concerns that have the potential to become a political flashpoint in upcoming elections. The restrictions, which include adjustments to loan-to-value limits on financing from the public housing authority, are intended to foster a market that is both stable and sustainable, as outlined in a joint statement issued late Monday by the Ministry of National Development and the Housing & Development Board.
The affordability of public housing has emerged as a contentious issue for the ruling People’s Action Party, which has governed Singapore since its independence in 1965 but has faced a decline in popularity in recent years. Nearly 80% of households in the city-state reside in public housing units, constructed and sold at subsidized rates by the state.
The prices of second-hand flats have witnessed a significant uptick in recent years, with some properties exceeding S$1 million ($764,000) in value. Factors such as pandemic-induced construction delays for new homes and strong demand for flats in desirable neighborhoods have contributed to this trend. Government data reveals that resale prices of public flats increased by 4.9% last year and have continued to rise by over 4% in the first half of 2024.
Loan-to-Value Adjustments
The latest measures entail a reduction in the loan-to-value limits, determining the maximum borrowing amount from the Housing & Development Board, to 75% of a property’s price or value from the previous 80%. The limit for loans from commercial banks remains at 75%. These changes came into effect on August 20 and apply to transactions in both the secondary market and new units, known as Build-To-Order flats, starting in October.
In a statement, it was highlighted that amidst sustained and robust demand for HDB resale flats, these measures are intended to temper the market and promote responsible borrowing practices.
Additionally, the government plans to enhance housing grants by up to S$40,000 to enhance affordability for first-time homebuyers from lower-to-middle-income brackets.
Insights from Bloomberg Intelligence
According to Ken Foong, an analyst from Bloomberg Intelligence, the adjustment in loan-to-value limits for public-home financing could potentially slow down price growth in the segment and slightly temper gains in the private housing market. The impact may affect the affordability of public housing owners looking to upgrade to private properties as resale price growth decelerates.
Alan Cheong, the executive director of research for Singapore at Savills Plc, remarked that the government’s action was likely prompted by outlier prices in the second-hand public housing market. However, he noted that the impact might be limited, especially as high-income buyers interested in expensive properties may be less sensitive to loan limits, indicating that the market could continue to witness record-setting trends.
These new measures mark the third instance in less than three years that authorities have tightened regulations on HDB housing loans. These mortgages, offered by the public housing authority, come with lower interest rates compared to those from banks. Previously, the loan-to-value limits were reduced from 90% in late 2021 and further adjusted in 2022.
In response to voter discontent on the issue, the government has ramped up housing supply, committing to launch 100,000 public housing flats between 2021 and 2025.
Prime Minister Wong’s Commitment
In his recent policy speech, Prime Minister Wong reiterated the government’s commitment to meeting its housing goals, aiming to alleviate concerns about housing affordability among various segments of the population. He also emphasized the government’s efforts to address housing issues for singles and lower-income couples.
As Singapore prepares for the upcoming elections, scheduled to take place by November 2025, these new property regulations underscore the government’s efforts to address housing concerns and manage the real estate market. The upcoming vote follows the People’s Action Party’s challenging electoral results in 2020, signaling a shift in public sentiment towards economic issues and governance preferences.
