http://www.businesstimes.com.sg/prem...curbs-20130828

Published August 28, 2013

PRs may go 'private' after resale flat curbs

By jasmine ng [email protected]


[SINGAPORE] Tighter housing loan limits and restrictions on permanent residents have been imposed for the purchase of HDB resale flats, which could drive up demand for the rental and private residential markets in the next three years.

The latest series of measures - which include a three-year wait before newly-minted PRs can buy a resale flat - may even rejuvenate the private residential sector, which is expecting an onslaught of supply up to 2016, analysts that BT spoke to said. The new rule for PRs will take effect immediately.

"For the next three years, this is going to be a lifeline for the private housing market as a lot of private homes will be completed," SLP International research head Nicholas Mak said. He expects HDB resale volumes to fall between 15 and 25 per cent in the next 1-2 quarters.

Data published by the Urban Redevelopment Authority (URA) shows that a record 82,500 private homes are expected to make it to the market by 2016. The government also intends to take in 30,000 PRs a year to maintain a stable number of permanent residents here, according to the National Population and Talent Division.

Mr Mak pointed out, however, that PRs face a 5 per cent additional buyer's stamp duty (ABSD) on their first property purchase. This could deter them from buying private residential properties, he said.

There are PRs who are not able to afford the higher prices of private properties too, so they will head for the rental market, said Christine Li, OrangeTee's head of research & consultancy.

To stabilise the HDB resale market, the Ministry of National Development and Housing & Development Board yesterday tightened mortgage rules to discourage those who buy public flats from overspending.

The government will reduce the maximum tenure for public housing loans to 25 years from 30. Flat buyers who take HDB loans can now use only up to 30 per cent of their gross monthly income to repay their loans, down from 35 per cent.

"These measures are in line with those introduced by the Monetary Authority of Singapore (MAS) to encourage financial prudence among borrowers, which is especially important given that the current low-interest-rate environment is unlikely to be sustained," according to the statement.

The maximum repayment period for bank loans taken to buy HDB flats will also be lowered from 35 to 30 years, including those under the Design, Build and Sell Scheme (DBSS). New loans with tenures exceeding 25 years and up to 30 years will be subject to tighter loan-to-value limits.

"Reducing the mortgage servicing ratio (MSR) can definitely help to further cool and stabilise the demand for HDB resale flats, as seen by January's introduction of MSR, which has already helped to ease overexuberance for resale flats," said Ong Kah Seng, director of R'ST Research.

"The cash-over-valuation will have the potential to fall further as buyers have to fork out the amount not covered by the loan in cash. Demand for larger flats like five-room flats will reduce further," he added.

On the back of a lower MSR and shorter loan tenure, Mr Mak estimates that a homebuyer with a monthly household income of $4,000 would have to buy a flat that is $86,500 cheaper, even after factoring in new housing grants. "By limiting the purchasing power of resale flat buyers, it will curb the increase in HDB resale flat prices," he said.

Prime Minister Lee Hsien Loong pledged in his National Day Rally policy address this month to increase public housing grants for families so they can afford bigger homes.

The government yesterday said it would raise the income ceiling for the Special CPF Housing Grant (SHG) to $6,500 from $2,250 to include middle-income families buying four- room flats.

A step-up housing grant of $15,000 has also been introduced to help families living in two-room flats to upgrade to three-room units in non-mature estates.

These new grants apply from July's Build-To-Order (BTO) exercise.