Is The New 75% LTV Limit Enough to Lower HDB Prices?

On August 19, 2024, the Singapore government introduced new measures aimed at cooling the HDB resale market. If you’re in the market to buy, sell, or invest in property, these changes could have a significant impact on your plans. The key measures include lowering the Loan-to-Value (LTV) limit for HDB loans from 80% to 75% and increasing the Enhanced CPF Housing Grant (EHG) for first-time buyers. But will these changes actually achieve their goals?

Table of Contents:

A summary of the Aug 2024 cooling measures

1. Lower LTV Limit

The LTV limit is essentially how much you can borrow against the value of your property. Previously, you could borrow up to 80% of a property’s value with an HDB loan. Now, that’s been reduced to 75%. This means you’ll need to cover more of the property’s cost upfront—either through cash or your CPF savings. The government’s goal here is to cool demand by making it harder to borrow large amounts of money, which, in theory, should slow down the rapid price increases.

2. Increased EHG for families and singles

The EHG has been increased to give more financial support to first-time buyers. If you’re buying your first home, you could now receive up to $120,000 if you’re a family or up to $60,000 if you’re single. This boost is designed to help offset some of the higher costs due to the lower LTV limit, making it easier for you to enter the market.

Will the cooling measures actually work?

The effectiveness of these measures largely depends on how they influence different groups in the market. Let’s break down who stands to gain, who might struggle, and whether these changes could lead to unexpected outcomes.

Who gains and who might struggle as a result?

Winners

• First-Time Buyers: If you’re buying your first home, the increased EHG is great news. With up to $230,000 in total grants available, this additional financial support can make a huge difference, helping you cover the downpayment and reducing the amount you need to borrow. This could make homeownership more attainable for you.

• Lower-Income Families: For those of you in the lower-income bracket, the increased EHG is a significant boost. It provides you with the financial backing needed to enter the property market, something that might have been out of reach before these changes.

Losers

• Current Homeowners Looking to Move: If you already own a flat and are considering moving to a more expensive property, you might find the new LTV limit challenging. The higher cash requirement could delay your plans, as you may need more time to save up the additional funds. This delay could create a bottleneck in the property ladder, slowing down the market.

• Smaller-Scale Investors: If you’re an investor relying on leveraging to finance multiple properties, the reduced borrowing power due to the lower LTV limit might limit your ability to invest. While wealthier investors can absorb the higher downpayments, those with less financial flexibility might find it harder to continue their investment strategies.

How the cooling measures could backfire

While the government intends to cool the market and make housing more affordable, these measures could have several unintended consequences.

1. Pushing prices higher in certain segments

The reduced LTV limit may discourage some buyers, but it won’t affect everyone equally. Cash-rich buyers, who have ample financial resources, are less likely to be deterred by the need for a larger downpayment. These buyers could concentrate their purchasing power on high-demand areas or larger flats, potentially driving prices up in those segments. Instead of cooling the market across the board, this could create pockets of price increases, particularly in desirable locations.

2. Creating a two-tier market

The increased EHG will make smaller or more affordable flats especially attractive to first-time buyers, possibly leading to strong demand in this segment. Meanwhile, the larger upfront costs due to the lower LTV limit might dampen demand for larger or more expensive flats. This could result in a two-tier market, where prices for smaller flats continue to rise due to strong demand, while prices for larger flats stagnate or even decline.

3. Delaying home moves

If you’re planning to move into a larger or more expensive property, the increased cash requirement from the reduced LTV limit might delay your plans. With fewer of these buyers entering the market, there could be a reduction in the availability of resale flats, which might keep resale prices elevated rather than cooling them as intended.

4. Increased reliance on grants

While the increased EHG is designed to help first-time buyers, there’s a risk that sellers might price in these grants, knowing that buyers have more funds available. If this happens, the benefit of the grants could be diminished, as higher prices might absorb the additional financial support meant to make homes more affordable.

5. Speculative demand for grants

There’s also the possibility that the increased grants could attract speculative buyers who see an opportunity to leverage this financial assistance. If these buyers rush to purchase flats, it could temporarily inflate demand and cause a spike in prices, counteracting the intended cooling effect of the measures.

Moving forward

While the Aug 2024 cooling measures are meant to stabilise the HDB market, the outcome is not exactly clear-cut. The increased grants may support first-time buyers and lower-income families, but they may also fuel demand, driving prices up in certain areas. The real impact will only become clear over time.

As you navigate these changes, it’s crucial to have the right support. Let Ohmyhome guide you through this shifting market, helping you make the best decisions for your property journey. Get in touch with us today!

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