Government addresses psychological factors driving HDB resale market surge

The government’s recent intervention in the HDB resale market, through the reduction of the loan-to-value limit, is seen as a necessary measure to curb speculative behavior and prevent a property bubble. Experts believe that this move could make buyers more cautious, potentially leading to a cooling of the market.

Image Credits - era

National Development Minister Desmond Lee highlighted the psychological factors influencing rising Housing Board (HDB) resale prices, attributing much of the surge to buyer anxiety and seller expectations that prices will continue to climb. This concern has prompted the Singapore government to intervene by lowering the loan-to-value (LTV) limit for HDB loans from 80% to 75%, effective August 20. The move is designed to curb demand and encourage more cautious borrowing, thus cooling the overheated resale market.

During an August 20 media briefing, Minister Lee stressed the potential dangers of unchecked market dynamics, warning that they could cause the resale market to deviate from economic fundamentals, leading to a property bubble. The new LTV limit aims to mitigate these risks by making buyers more prudent and cautious in their purchase decisions.

The minister also addressed public concern over the rising number of million-dollar HDB flats, noting that while the proportion of such sales has increased, they still represent a small fraction of overall transactions—about 2% in the last 18 months. He emphasized that this does not mean all resale flats are priced in the million-dollar range, although public perception might suggest otherwise.

Data from the Housing Development Board (HDB) revealed that resale prices have been on an upward trajectory since the second quarter of 2020. While the growth rate slowed to 4.9% in 2023, it remains a notable increase compared to previous years. The first half of 2024 saw a continued rise of over 4%, further exacerbating concerns.

Experts agree that the government’s intervention could have a stabilizing effect. ERA key executive director Eugene Lim noted that the reduction in the LTV limit might compel buyers to be more conservative with their offers, particularly in the wake of news about surging resale prices. Additionally, Professor Sing Tien Foo from NUS Business School suggested that the new LTV rules might encourage buyers to opt for smaller, less expensive flats, while sellers might adjust their asking prices downward in response to reduced buyer interest in higher-priced units.