SINGAPORE - The authorities will intervene and do what is needed, as seen in the latest property cooling measures, to keep public housing affordable for Singaporeans and ensure the property market is stable, Minister for National Development Desmond Lee told Parliament on Tuesday.
Responding to questions from Mr Yip Hon Weng (Yio Chu Kang), Mr Lee said the government will intervene decisively and carefully, being cognisant of the uncertain global economic outlook and rising interest rates, which affect home prices and contribute to uncertainty in the local property market.
"We will continue to monitor the market closely and adjust our policies as necessary on both housing demand and supply, to ensure that prices move broadly in line with economic fundamentals," said Mr Lee.
"This Government is committed to the stability of the wider Singapore property market, and to keeping public housing inclusive, affordable and accessible to Singaporeans."
Mr Yip had asked whether the affordability of Housing Board flats should be pegged to median household incomes or other income or wealth indicators, such as the 30th percentile of income. He also asked whether measures are being taken to address the growing sentiment that property here is unaffordable for the masses.
Mr Lee noted that the average price for a new four-room flat in a non-mature estate has remained relatively stable at $341,000 in 2019 and $348,000 in the first three quarters of 2022.
He said that prices have been relatively stable as market subsidies have been increased to keep new flats affordable. Eligible first-timer buyers can also receive Enhanced CPF Housing Grants (EHG) of up to $80,000, with more help for lower-income buyers, he said.
In response to Mr Yip's question on considering different benchmarks, Mr Lee said the authorities' affordability benchmarks do not only consider median incomes, as there is a wide range of BTO flats for first-time home buyers with different housing needs and budgets.
For example, a first-timer household earning about $5,000, which is slightly less than the 30th percentile of resident household incomes, may buy a four-room flat in any of the three non-mature estate projects in the recent August 2022 Build-To-Order (BTO) exercise.
These projects in Woodlands, Jurong East and Choa Chu Kang come with typical prices comparable to or lower than the average price of BTO flats in non-mature estates, at about $348,000, said Mr Lee.
After factoring in $45,000 in grants, they will need to use 23 per cent of their monthly income for their housing loan, which means they can service their mortgages from their monthly Central Provident Fund (CPF) contributions with no cash outlay.
This works out to a home price-to-income ratio of around five for this family, which means the price of their home is about five times their annual household income, said Mr Lee.
Another example he gave was a first-timer couple who are both fresh tertiary graduates with a typical combined starting salary of about $6,500.
For the same new four-room flats from the August 2022 BTO exercise, they would get $30,000 in grants, and need to use only 18 per cent of their monthly income for their housing loan.
This works out to a home price-to-income ratio of around four for this family, and they would also be able to service their mortgage fully from their CPF contributions.
Said Mr Lee: "As a broad comparison, the ratio of the median home price to the median household income in other comparable cities, such as London, Los Angeles and Sydney, are much higher, at between eight to 15 times. In Hong Kong, it is more than 20 times."
He added that for resale flats, the Government provides significant housing grants of up to $160,000 to ensure they remain affordable for eligible first-timer families.
These grants are reviewed regularly to ensure resale flats remain affordable.
He also noted that generally, the mortgage servicing ratio – the proportion of monthly income used to service mortgage instalment payments – has remained below 25 per cent for most new and resale first-timer flat buyers taking an HDB loan.
"This is well below the international benchmark of 30 per cent to 35 per cent. This means that most first-timer buyers can service their housing loans using their monthly CPF contributions, with little or no cash outlay," said Mr Lee.
Latest property cooling measures
In his reply, Mr Lee also elaborated on the rationale for the latest slew of measures announced on Sept 30 to moderate demand in the HDB resale market.
He said these were meant to ensure HDB flats remain affordable and to encourage prudent borrowing amid the rising interest rate environment.
One of the measures introduced was a wait-out period of 15 months before private property owners are allowed to purchase a non-subsidised HDB resale flat.
Mr Lee said this measure aims to moderate demand and slow the momentum of price increases in the HDB resale market, by deferring demand from private property owners, so that HDB resale flats will continue to be an affordable option for first-time HDB flat buyers.
"We intend for this measure to be temporary and will review this, depending on overall demand and market changes," he said.
Previously, private residential property owners looking to buy a non-subsidised HDB resale flat did not have to serve a wait-out period, but would need to sell their private properties within six months of the HDB flat purchase.
This group accounts for about one in 10 resale flat buyers, said Mr Lee.
Mr Lee said the authorities recognise that not all private residential property owners are in the same situation.
Some seniors need to move to an HDB flat to strengthen their retirement adequacy, hence those above 55 who are moving to a four-room or smaller resale flat are exempted from the wait-out period.
As for those who face genuine housing needs or who have to sell their homes because of extenuating circumstances such as financial difficulties, whatever their age, they should approach HDB for assistance, said Mr Lee.
Several of the recently announced measures were also implemented to alleviate the challenges from the rising interest rate environment.
Mr Lee noted that from 2013 to 2021, interest rates were exceptionally low, especially from financial institutions, but over the last year, market interest rates have risen, with further increases expected over the medium term.
This will increase borrowing costs for those buying a home, and for those servicing existing home loans pegged to floating rates, he said.
"Therefore, we have decided to move now to safeguard home buyers, and ensure they are able to service their long-term home loans," said Mr Lee.
Measures announced to ensure prudent borrowing included raising the medium-term interest rate floor used under the Total Debt Servicing Ratio and Mortgage Servicing Ratio frameworks to compute a borrower's maximum loan quantum for residential property loans granted by private financial institutions from 3.5 per cent to 4 per cent per annum; an interest rate floor of 3 per cent per annum to compute a borrower's eligible housing loan amount; and lowering the loan-to-value limit for HDB housing loans from 85 per cent to 80 per cent.
Mr Lee said these measures were necessary as property loans are long-term commitments and often a household's largest liability.
He said: "The higher floor rates ensure that today's borrowers take loans that reflect the likelihood of rising interest rates and avoid overstretching themselves.
"If we do not move now, households may run into housing difficulties or they find it harder to service their housing obligations. This is already happening in other countries where we see home owners defaulting on their mortgage payments and losing their homes."
Factors leading to increased demand
Mr Lee also touched on factors that have contributed to rising resale HDB prices.
In the past two years, there are more households being formed as those in their 30s are getting married, while societal trends are shifting towards smaller households as young couples, singles, as well as adult children choose to buy their own homes instead of living together with their parents.
These aspirations for more personal space may have been accentuated during the Covid-19 pandemic, added Mr Lee.
More home buyers have also turned to the resale market because of longer waiting times for BTO flats owing to construction delays, he said.
"These demand factors, alongside the previous low interest rate environment that made it cheaper to service a home loan, have put upward pressure on HDB resale flat prices," said Mr Lee, noting that since the Government implemented a broad package of measures in December 2021, the HDB Resale Price Index has increased by 5.3 per cent in the first half 2022.
"We understand the concerns about housing affordability and have therefore been carefully monitoring the housing market."
He added that keeping public housing affordable and accessible is a "key national priority" and provides the basic foundation to raise families, bring up children and build strong communities.
Supply has also been increased in both the public and private housing markets amid demand, such as the ramping up of BTO flat supply, said Mr Lee.
Progress Singapore Party Non-Constituency MP Hazel Poa asked whether the ministry has conducted or will conduct studies on the impact of rising public housing prices on marriage and fertility rates.
Second Minister for National Development Indranee Rajah said while the ministry had not conducted such studies, its regular surveys and engagements indicate that many couples continue to aspire to have their own home before they start a family.
Recognising this, public housing policies are designed to prioritise and support such first-timer families, said Ms Indranee.
For example, for BTO flats in non-mature estates, the quota for three and four-room flats set aside for first-timer families was increased to 85 per cent and 95 per cent respectively.
For mature estates, 95 per cent of BTO flat supply is set aside for first-timer families.
To meet the strong housing demand, new flat supply has been ramped up with 23,000 new flats per year in 2022 and 2023 – a 35 per cent increase from 2021, and the authorities are prepared to launch up to 100,000 new flats from 2021 to 2025, said Ms Indranee.