‘Psychological factor’ contributes to high HDB resale prices
Perceptions that Housing Board resale prices will continue getting higher are making home buyers anxious to secure a flat regardless of the price, while raising sellers’ expectations about how much their flats can fetch, said National Development Minister Desmond Lee.
He flagged this “psychological dynamic” as a factor contributing to rising flat prices, as he explained why the Government has tightened the HDB loan limit to cool the resale market.
From Aug 20, HDB has lowered the loan-to-value (LTV) limit, or the maximum loan that home buyers can take from HDB to fund a new or resale flat purchase, from 80 per cent to 75 per cent.
At a media briefing on Aug 20, Mr Lee said: “If we are not careful, such market dynamics can cause the resale market to run out of line with economic fundamentals and cause a bubble. History tells us that the property market moves in cycles, and those who buy at higher prices with larger loans are also hardest hit when the market cools.
“This is why we are moving now to dampen demand and encourage prudent borrowing, even as we continue to inject supply at a steady pace to meet demand.”
Besides cooling demand at the higher end of the resale market, Mr Lee said the psychological factor can be addressed by providing Singaporeans with an accurate perspective of the situation.
HDB flats that changed hands for more than $1 million have created concern about the affordability of HDB resale flats as a whole, he noted.
Mr Lee said the proportion of million-dollar resale flats has grown but remains very small – about 2 per cent of all transactions in the past 1½ years. Only 0.5 per cent of four-room and smaller flats transacted in the past two years were sold for one million or more.
“But when they go around, people have the impression that every resale flat is a million dollars or more,” he said.
The minister made the point that eight in 10 first-time home buyers who bought resale flats in 2023 used 25 per cent or less of their monthly household income to service their HDB loans.
They were able to service their monthly instalments through their Central Provident Fund money, with little or no cash outlay.
According to data released by HDB in July, resale prices have been rising continuously since the second quarter of 2020.
HDB resale prices grew by 4.9 per cent in 2023, HDB and the Ministry of National Development said in a statement on Aug 19. While this figure is significantly lower than the 10.4 per cent in 2022, resale prices continued to rise by more than 4 per cent in the first half of 2024.
ERA key executive officer Eugene Lim said 539 million-dollar HDB resale flats were sold in the first seven months of 2024, compared with 82 such deals in 2020.
“The high number of million-dollar flats being sold likely prompted a response from the Government... By lowering the LTV for HDB loans, it may compel buyers to be more conservative with their offering prices,” added Mr Lim.
The five percentage point reduction in the LTV limit will have a “psychological impact” on those who may have been rushing to buy flats after reading about surging resale prices, said Professor Sing Tien Foo, provost’s chair professor of real estate at NUS Business School.
He added: “When people see that they have to fork out more cash or CPF (money) upfront, they might reconsider their decision and think more carefully before purchasing a flat, and may opt for a smaller, less expensive one.
“Sellers might also lower their asking prices because there will likely be fewer buyers who are interested in more expensive flats, and this might help to cool the market a bit.”
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