SINGAPORE - There are fewer Housing Board flat upgraders chasing the condominium dream after several rounds of property cooling measures.

Adding to that are higher mortgage rates and private home prices, as well as growing economic headwinds.

A total of 2,322 new and resale non-landed private homes were bought by those with HDB addresses in the first half of 2023, down nearly 36 per cent from 3,628 during the same period in 2022, said real estate firm OrangeTee & Tie, citing transactions recorded in the Urban Redevelopment Authority’s Realis database.

In 2022, 6,287 new and resale private homes were bought by those with HDB addresses, down 36.2 per cent from 9,854 units in 2021, according to OrangeTee & Tie.

Among the reasons for the drop were three rounds of property curbs introduced in December 2021, September 2022 and April 2023, which tightened borrowing limits and raised the additional buyer’s stamp duty (ABSD) from 12 per cent to 20 per cent for those buying their second residential property.

The total debt servicing ratio (TDSR) threshold was also tightened from 60 per cent to 55 per cent, further restricting liquidity and financing for non-first-time buyers, said property firm ERA Singapore’s key executive officer Eugene Lim. TDSR is the portion of a borrower’s gross monthly income that goes towards repaying all monthly debt obligations.

In addition, the medium-term interest rate floor used to compute TDSR and the mortgage servicing ratio was raised by 0.5 percentage point to 4 per cent for residential property loans from Sept 30, 2022.

The mortgage servicing ratio is the portion of a borrower’s gross monthly income that goes towards repaying all property loans.

“As banks are now required to use a higher mandatory interest rate of at least 4 per cent to compute the loan, some home buyers who were borderline cases were not able to secure their loan,” Mr Lim said.

Further dampening demand, the average three-month compounded Singapore Overnight Rate Average – the benchmark interest rate used to price floating-rate home loans – jumped to 3.21 per cent in the first quarter of 2023, from 0.22 per cent in the first quarter of 2022, he added.

“This big surge in interest rates in a year means monthly mortgage payments would have correspondingly increased,” he said.

Even more pronounced is the drop in sales of new non-landed private homes to those with HDB addresses.

This came as the number of newly launched units shrank 57 per cent to 4,528 in 2022 from 10,496 in 2021, noted Mr Lam Chern Woon, head of research and consulting at Edmund Tie.

According to OrangeTee & Tie, buyers with HDB addresses accounted for just 682 new condo sales in the first half of 2023, down 40.9 per cent from 1,154 units in the first half of 2022.

Condo resale transactions for this group, meanwhile, fell 33.7 per cent to 1,640 units from 2,474 units over the same period.

Mr Lam attributed the drop in resale transactions to the elevated interest-rate climate, sombre economic outlook and dampening effects of the cooling measures.

Nonetheless, resale transactions have been exceeding new sales since the second half of 2020, in part because the rise in resale condo prices has not been as sharp as that for new condos in the past two years, said OrangeTee & Tie senior vice-president for research and analytics Christine Sun.

Median resale prices rose just 9 per cent from 2021 to 2022, compared with median new-home prices, which jumped nearly 22 per cent in the same period, she said.

ERA’s Mr Lim noted that buyers with HDB addresses paid an average of $2,169 per sq ft (psf) for a new condo in 2022, compared with $1,514 psf for a resale unit.

“This may explain why the drop in new sales was more significant than that for resale condos,” he said.

The 15-month wait-out period, which restricts certain private property downgraders from buying a resale flat after selling their private home, may also have helped boost demand for resale condos, analysts said.

The spike in rents also pushed some HDB upgraders to buy resale condos instead of new ones.

Huttons Asia senior research director Lee Sze Teck said: “In the past, to avoid having to pay ABSD on the second property, buyers would sell their current property and rent a place to stay at while waiting for their new condo to be built.

“But a more than 50 per cent increase in rents from the fourth quarter of 2020 to the first half of 2023 made it harder for HDB upgraders.

“The rent for an HDB flat or private property may be comparable to a mortgage instalment for a resale private property,” he said.

Mr Lee called for a review of the policy prohibiting the upfront remission of ABSD for HDB upgraders buying a new private property – excluding executive condominiums (ECs) – which he said has likely “reduced upward housing mobility”.

Meanwhile, most analysts had mixed views on the impact of the new classification of Build-To-Order (BTO) flats as Prime, Plus or Standard on the private housing market.

Some said Prime and Plus flats, which come with a 10-year minimum occupation period (MOP), among other conditions, will delay the upgrading timeframe for their owners.

“Delaying or pacing the upgrading timeframe for some HDB home owners by imposing a longer MOP may manage demand. Private home supply is allowed to catch up, moderating price growth in the private markets,” said OrangeTee & Tie’s Ms Sun.

“Although some Singaporeans may take longer to scale the property ladder, they stand to gain if prices grow at a more sustainable rate.”

Edmund Tie’s Mr Lam believes the overall impact will likely be minimal because “Prime and Plus flats will be in the minority of BTO flats offered”.

In fact, upgrading demand from existing flat sellers who are able to sell at around $1.1 million is likely to stay intact, he said.

He added: “The overall pace of resale flat price appreciation will likely moderate, given the (new) restrictions in the public resale market, which will translate into a more gradual price uplift for the private housing market.”

But other analysts said it is too early to ascertain the true impact because the new classification of BTO flats will take effect only from the second half of 2024, and Prime and Plus resale flats may hit the market only 14 to 17 years later.

ERA’s Mr Lim believes the stringent resale conditions of Prime and Plus flats may limit capital gains for sellers, making it harder for them to climb the property ladder.

For a start, the 10-year MOP shortens the runway for any eventual bank loan that flat owners may take out to upgrade to an EC or private condo later, he said.

“For example, a 30-year-old couple buying a Prime or Plus flat may take possession (of their flat) at age 35. The couple will be 45 years old before they can resell the flat to upgrade.

“The bank loan tenure will therefore only be 20 years, compared with 25 years for another 30-year-old couple buying a Standard flat with a five-year MOP. The shorter the loan tenure, the higher the monthly loan instalment,” he added.

Separately, Mr Lim noted that the household income ceiling cap of $14,000 for resale buyers of a Prime or Plus flat, coupled with a mortgage servicing ratio of 30 per cent on all loans to buy HDB flats, “essentially limits the resale buyer’s maximum loan quantum”. 

In contrast, there is no income ceiling cap for resale buyers of Standard flats, which have a five-year MOP and more palatable starting prices, and allow for an earlier exit strategy, he said.