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AROUND one in 10 homebuyers with a loan from the Housing and Development Board (HDB) borrow 75 per cent or more of their flat price in their home purchase – and this group of buyers is more likely to be affected by the government’s new measures to tame the resale market.

The loan-to-value (LTV) ratio for HDB loans was cut from 80 per cent to 75 per cent, in line with those granted by financial institutions, in the government’s latest round of cooling measures. The LTV refers to the ratio of the home loan to the value of the property. The lowering of the LTV limit means buyers can borrow less than before from HDB to finance their home purchase.

In a media briefing explaining the move on Tuesday (Aug 10), Minister for National Development Desmond Lee said the authorities have observed that buyers who take loans at higher LTV ratios disproportionately buy larger flats and pay higher prices. 

This group of buyers is “not insignificant” – they pay a median of S$20,000 to S$60,000 more than other buyers, driving up the overall resale market, he said.  

The lower LTV limit will therefore encourage more prudent borrowing and dampen demand at the higher end of the market, which will, in turn, stabilise the rest of the resale market, said Lee.

Based on latest government data, resale prices rose 4.2 per cent in the first half of 2024 – just a notch lower than the 4.9 per cent increase witnessed in the whole of 2023. News of more public housing flats changing hands at over S$1 million have also raised eyebrows. 

But Lee highlighted that the number of million-dollar flat transactions is, in actuality, just around 2 per cent of all resale transactions in the last year and a half. 

These flats are mostly maisonettes, executive apartments, jumbo flats or five-room flats in central locations located on high floors, he said. “The problem is that (these flats making the news) has caused Singaporeans to be concerned about the affordability of resale flats as a whole… If you are not careful, such market dynamics can cause the resale market to run out of line with economic fundamentals and cause a bubble.”  

The minister also highlighted that the government’s latest move is “not just a cooling measure”. 

“It is prudential,” said Lee. “There is so much uncertainty. We don’t know when interest rates will moderate, we don’t know what the economic conditions are like going forward.” 

“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 moves,” he said.  

Still, Lee emphasised that the vast majority of homebuyers with HDB loans will not be affected by the lowering of the LTV limit. The remaining nine in 10 buyers with HDB loans see a LTV limit of 75 per cent or less. 

Lee also noted that the majority of buyers do not pay a cost over valuation (COV) when purchasing a resale flat. The COV refers to the difference between the sale price of a resale flat and its actual HDB valuation. The difference can only be paid for in cash by the buyer. 

Of the minority that incurs a COV, buyers pay a median of S$30,000 to S$40,000, and this has been “pretty stable” in the last one to two years, said Lee.

Additionally, Lee said the HDB has increased the Enhanced CPF Housing Grant up to S$120,000 to help first time buyers from lower to middle income households mitigate the impact of the lower LTV.

Around 85 per cent of first-time buyers – more than 13,000 households – are expected to benefit from this move each year, with lower-income households receiving the most support, he said.