Recently, the Ministry of National Development and the Housing and Development Board of Singapore announced that they will reduce the loan-to-value (LTV) ratio cap for Housing and Development Board (HDB) housing loans from 80% to 75% and increase the Additional Housing Grant (EHG). This move aims to further assist first-time buyers, especially middle and low-income families, in purchasing new and resale HDB flats, and to encourage non-essential homebuyers to be more cautious in taking loans for purchasing homes, in order to curb the continuous rise in resale HDB flat prices and prevent the emergence of a real estate bubble.

The cooling measures previously introduced by the Singaporean government, along with the increase in the supply of pre-construction HDB flats, have already slowed down the upward trend in resale HDB flat prices. The prices of resale HDB flats in Singapore rose by 4.9% in 2023, significantly narrowing from a 10.4% increase in 2022. However, strong and widespread market demand, coupled with a smaller number of units reaching the minimum occupation period requirement this year, has led to a price increase of over 4% in the first half of this year for resale HDB flats.

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As of the end of July this year, Singapore has completed about 543 resale HDB flats transactions exceeding one million Singapore dollars, surpassing the 470 transactions for the whole of last year. Particularly in July, 120 resale HDB flats were sold for over one million Singapore dollars, setting a new historical record. The continuous emergence of resale HDB flats priced over one million Singapore dollars has fueled the enthusiasm of residents for buying and selling HDB flats.

More than 80% of Singapore's population lives in government-provided HDB flats. In recent years, with a significant influx of foreign capital and a rapid increase in immigration, Singapore's real estate transaction volume and prices have been growing markedly. The rapid increase in the transaction prices of government HDB flats, condominiums, and private homes has attracted government attention, leading to the introduction of multiple regulatory policies to prevent the real estate industry from overheating.

Looking at the resale HDB flat sales prices, there was a 7.6% increase in July compared to the same period last year. Prices for all types of units are on the rise, with a 6.6% increase for three-room flats, an 8.7% increase for four-room flats, a 7.6% increase for five-room flats, and a 6.3% increase for apartment-style flats. Prices in mature and non-mature communities have risen by 7.8% and 7.5%, respectively. The increase in housing prices has significantly outpaced the growth in residents' incomes.

In terms of resale HDB flat transaction volumes, 3,049 units were sold in July, a 39.6% increase month-on-month and a 48.3% increase year-on-year. By type of unit, three-room HDB flats accounted for 24.9% of transactions, four-room HDB flats 46.0%, five-room HDB flats 23.5%, and apartment-style flats 5.6%. Geographically, non-mature communities accounted for 59.5% of resale HDB flats in July, while mature communities accounted for 40.5%.

This reduction in the LTV cap is the third adjustment by the Singaporean government within four years, with each previous reduction being 5 percentage points. In December 2021, it was first reduced from 90% to 85%. In September 2022, it was reduced from 85% to 80%. Starting from August 20th this year, it was further lowered to 75%. This means that from August 20th, the amount of housing loans provided by the HDB will not exceed 75% of the value of the house. After the adjustment, the proportion of loans issued by the HDB and financial institutions remains consistent. Buyers must use more cash or CPF savings to pay for the 25% down payment on HDB flats.

The impact of the new rule on first-time HDB flat buyers is relatively small, especially for low-income families, as they can receive higher housing grants. To help middle and low-income families purchase HDB flats, the maximum Additional Housing Grant for eligible first-time HDB flat buying families has been increased from the current 80,000 Singapore dollars to 120,000 Singapore dollars. The maximum Additional Housing Grant for single first-time HDB flat buyers has been increased from 40,000 Singapore dollars to 60,000 Singapore dollars.

The lower the income of HDB flat buyers, the more Additional Housing Grant they receive, regardless of the type of house and location. Families with a monthly income of less than 1,500 Singapore dollars and single individuals with a monthly income of less than 750 Singapore dollars can receive the full Additional Housing Grant. Within two months after the completion of the resale HDB flat transaction, the Additional Housing Grant received will be automatically deposited into the buyer's CPF account by government departments.

After this increase in the Additional Housing Grant, it is expected that 13,000 first-time HDB flat buying families will benefit annually. The Additional Housing Grant policy, introduced in September 2019, has benefited about 72,300 first-time HDB flat buying families to date, with a total of over 2 billion Singapore dollars in government grants. Among the beneficiary families, 40% purchased resale HDB flats, and 60% applied for pre-construction HDB flats, remaining flats, or open booking flats from the government's HDB.In addition, to alleviate the pressure on residents to care for their families in addition to their busy work, and to provide more help and support to resident families, the Singapore government will slightly adjust the public housing policy from the middle of next year, allowing singles or married individuals to have priority when applying for pre-construction public housing near their parents' residence, in order to take care of their parents. In addition, the elderly or single individuals will both be able to purchase new homes. However, singles must be at least 35 years old to apply for pre-construction public housing from the Housing and Development Board, and can only purchase two-bedroom units. After the government adjusts the policy, although singles are given priority, they are not allowed to purchase larger units.

The government estimates that reducing the loan ratio will affect about 10% of resale public housing buyers, but these buyers may still be willing to pay more for properties closer to the city center or in better locations. If the government does not take preemptive measures, it may lead to a disconnect between the resale market and economic fundamentals, causing a bubble. Real estate industry analysts generally believe that the resale public housing cooling measures introduced by the government will undoubtedly play a positive role in curbing housing prices.