In addition to addressing private property directly (as we detailed in our articles on ABSD and LTV), the new cooling measures also had something for the public housing market. I guess they didn’t want Housing Development Board (HDB) flat buyers to feel left out!

The measures targeted specifically at the HDB market takes direct aim at two areas. Firstly, it affects HDB flat loans via a cap of the mortgage servicing ratio (MSR). For loans given by financial institutions, the MSR will be capped at 30% of a borrower’s gross monthly income. For loans offered by HDB, the cap will now be just slightly higher at 35% of monthly income. Previously, it was 40%.

HDB Point Block Henderson Estate SingaporeWhat does this mean for HDB flat prices? Well, assuming the monthly income refers to monthly household income, and barring extended families where the income ceiling is $15,000, a typical HDB household can have at most $10,000 of monthly income. When taking a loan offered by HDB, that means, at most, a monthly repayment of $3,500. Assuming a 30-year loan period, and 2% interest rate, someone at the very edge of the income ceiling could at most loan just over $946,920 $874,200* . If borrowing from a financial institution, that amount is slightly lower; just over $811,000. The nominal value for their flats, assuming 80% loan-to-value (LTV), would be just under $1.2 million $1.09 million* and just over $1 million respectively.

This imposes a very real upper limit for prices of HDB units. This is a significant barrier that will resist prices going above $1 million; only those who are cash rich, or have significant amounts in their CPF will be able to overcome this barrier. Of course, such people will generally be over the income ceiling anyway. Even if they weren’t, they’d be better off investing such liquid elsewhere, rather than public housing.

The other area that is tackled involves Singapore Permanent Residents (PR), specifically how they can use their HDB units. PRs will no longer be allowed to sublet their whole flat, thus earning rental income from their subsidised housing. Moreover, PRs will no longer be allowed to own both a HDB unit and other private property concurrently. Within six months of purchasing a private property, they will be required to sell off an existing HDB unit. Only PRs who are currently allowed to own a HDB unit and a private property can do so. However, even they must sell their HDB unit within six months, should they choose to buy another private property.

Combined with the other cooling measures, this will place a dampener on skyrocketing prices across most of the property market. We at BLUTA, even those of us who are adversely affected by these measures, agree that it is much needed to prevent a greater catastrophe down the road.

What do you think? Let us know, and share with us by commenting below or in our social media channels, Facebook, Twitter, and Google+.

Some of you may have noticed that we left out mention of Annex IV of the new measures. It may seem as if we don’t think it’s of any significance in the grand scheme of things. But the very opposite is true. It actually reflects the holistic nature of this round of measures. However, explaining the rationale behind it, and our take on its importance, will require a whole separate post, and it isn’t really within the scope of this current topic. Look out for it in the near future, here on BLUTA!

*Addendum: Our earlier figure was in error, as we used the 2% interest rate to calculate the loan from HDB. For such a loan, the rate is actually 2.6%, hence the revised figure of $874,200. We also note that bank interest rates can vary quite a lot, so we used a very conservative figure of 2%. If we use the current low rate of 1.39%, the potential sum borrowed could be as high as $882,700. In these cases, the value for the HDB flat could be just over $1.09 million or $1.1 million, respectively (assuming 80% LTV).


  One Response to “Public Housing Sector Gets Some Cooling Too”


    Major thanks for the blog article. Much obliged.

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