Private Property Market
The impact of rising interest rates in the US was translated into higher borrowing costs in recent months. Currently loans based on 3-month SORA charge an interest rate from 2.65%. The US FED is likely to increase its Funds Rate in the coming months given that inflation remains elevated. The possibility of local interest rates inching closer to MAS’ medium-term floor rate of 3.5% is high and hence the need to revise it up by 0.5%-point.
A 0.5%-point increase probably reflects MAS’ view at this juncture that rates may peak in the coming months and not come close to their medium-term floor rate of 4.0%.
This change will affect the maximum amount that a borrower can borrow. Huttons’ simulation showed that borrowers’ maximum loan amount will be reduced by 5.9%. For example, before 30 Sep, a buyer with a gross monthly income of $10,000 and a loan tenure of 30 years can purchase a property at $1.633 million. On or after 30 Sep, he can buy up to $1.536 million, 5.9% lower.
This policy cuts both ways. On one hand, a buyer will borrow less. On the other hand, the buyer may commit more cash to the purchase. It is a delicate balance.
There may be some impact on demand as some buyers may hold back for the moment as is the case with cooling measures. Developers may defer some launches to next year. Transaction volume may be slower in the next three months. We will probably see new sales transaction volume around 8,000 units, lower than our initial forecast of up to 9,000 units in 2022.
Prices are unlikely to be affected. For existing launches in the market, most of them have sold 80% or more of their units and it will be business as usual. We maintain our forecast of up to 8% in 2022.
The changes to HDB floor rate and lower LTV ratio for HDB concessionary loans is to encourage financial prudence. Essentially it will cap the amount buyers can borrow if they opt for a HDB loan. The difference is small and can be covered by grants.
The spate of million-dollar flats transactions in recent months were partly driven by private property owners. Many of them paid for the resale HDB flats in cash without the need for a loan. This has an overall uplifting effect on the HDB resale market.
Private property owners (PPO) will now need to sell off their private property and wait 15 months before they can buy a HDB resale flat. This effectively cuts off the demand from PPOs and ex-PPOs. But this is a temporary measure. It may be reinstated back to the old policy once the attention grabbing million-dollar flat situation has cooled. Because the transaction volume for million dollar flats is not large, the impact on volume is minimal.
HDB resale flat prices will likely stabilise further in 4Q 2022. We maintain our forecast of not more than 10% increase in prices and volume up to 27,000 flats in 2022.