New rules may ease HDB resale-flat demand

DEMAND for Housing Board (HDB) resale flats may ease in the wake of yesterday’s measures to toughen up rules on home lending.

The new regulations have lowered the maximum loan amount a bank can lend – this is known as loan-to-value (LTV) limit – from 90per cent to 80per cent.

That means buyers of private homes and HDB resale flats will now have to stump up a deposit of at least 20per cent of the purchase price, up from 10per cent.

The LTV for those eligible for HDB loans, such as first-time buyers and second-timers who are upgrading, is already at 90per cent and remains unchanged.

This is because there are already HDB measures in place to curb speculation and encourage financial prudence, said the Government yesterday.

For example, there is a minimum owner occupation period of three to five years and a restriction on ownership to one flat per household.

Housing analysts told The Straits Times yesterday that the new rules – they come into effect today – will hit the private property market more than the HDB resale sector, but there will be some impact.

Ngee Ann Polytechnic real estate lecturer Nicholas Mak said higher interest rates tended to deter most HDB buyers from borrowing up to 90per cent of the purchase price.

HDB resale homes are also cheaper than private property and there are fewer short-term speculators in the market.

But analysts say the demand for resale flats – which has been red hot and pushing prices to record levels recently – is likely to be tempered.

PropNex chief executive Mohamed Ismail said the segment of buyers that will be most affected are private property owners and permanent residents (PRs) who are not eligible for HDB loans.

The bulk of homeseekers – mostly first-timers and second-time upgraders – qualify for HDB loans and will not be affected.

But for those PRs who have not worked for a long period of time and accumulated enough CPF savings, the new rules may delay their home purchases, said Mr Ismail.

The amount of money paid upfront to a seller over a flat’s valuation – called cash-over-valuation (COV) – may also come down if buyers are less-cash rich and unable to afford high premiums, he added.

The median COV amount paid for HDB resale flats soared to a record $24,000 in the fourth quarter last year.

Resale flat prices have surged about 40per cent in the past three years.

Anxious buyers priced out of the market have pointed to private property owner-speculators and PR buyers as possible factors contributing to the sky-high demand, although the Government maintains that these buyers are a minority and not a significant market force.

A joint statement from the Ministries of National Development and Finance and the Monetary Authority of Singapore said the rules to tighten credit to the housing market were aimed at encouraging greater financial prudence among buyers.

Source: Straits Times, 20 Feb 2010