Impact of 15-month Wait-out Period on Private Property Downgraders

Ms Nadia Ahmad Samdin asked the Minister for National Development (a) for the past three years, what has been the number of HDB resale flat transactions involving buyers who are private property owners (PPOs) or PPOs who have disposed of a private property prior to submitting an application to buy a HDB resale flat; and (b) of such buyers, what is the percentage of purchasers who paid cash over valuation and who are above 55 years old.

Thank you, Sir. Mr Speaker, the public housing market has been buoyant since the first quarter of 2020. The HDB resale price index, or RPI, had declined by 9.9% over five years, between 2014 and 2018, and remained flat in 2019. The increase in resale HDB flat prices during the last two years of the pandemic reflects broad-based demand for housing, supported by the previously low interest rate environment.

In December 2021, the Government announced a package of measures to cool the private residential and HDB resale markets, including tightening the loan-to-value, or LTV limit, for loans from HDB.

In the immediate quarters, following the implementation of these measures, the HDB resale price index reflected a lower increase of 2.4% in 1Q2022, and 2.8% in 2Q2022, compared to 3.4% in 4Q2021. The Government has been watching the property market closely.

Sustained property price increases, if left unchecked, could run ahead of our economic fundamentals and increase the risk of a destabilising correction later, which will adversely impact many existing home owners.

On 29 September 2022, HDB announced further measures to, first, encourage home buyers to exercise greater financial prudence when taking home loans, as higher interest rates were expected over the medium term; and second, to moderate demand in the HDB resale market.

We expect these measures to slow the pace of HDB resale price increases, but we will continue to monitor the housing market closely.

One of the measures that we have implemented is the 15-month wait-out period before current and former private residential property owners can buy a non-subsidised HDB resale flat, that means, without taking the CPF housing grant.

Mr Alex Yam asked how this measure will help to cool the HDB resale market. The 15-month wait-out period is a temporary measure to moderate demand for resale flats and help to prioritise access to affordable public housing for Singaporeans with more urgent housing needs, such as first-time home buyers.

We will review this measure after monitoring overall demand and market conditions. To be clear, the 15-month wait-out period is a new measure for those buying resale flats without grant. There is an existing long-standing measure for private property owners buying HDB resale flats with grant, and they have to wait out 30 months. This measure, the long-standing measure, has been in place since 1975.

Members have asked about the number of private property owners who may be affected by this new wait-out period. The number of private property owners buying HDB resale flats has doubled in 2021 and the first three quarters of this year, compared to 2019 and 2020.

This group, which includes those who had sold their private property up to 15 months before their resale flat application, accounts for about one in 10 resale flat buyers in the past three years.

Proportionately, more current and former private property owners pay COV, or Cash-Over-Valuation, compared to other resale flat buyers, and they also pay higher COV amounts. This is, generally, because many of these private property owners have more financial means to pay for their resale flats, compared to first-time flat buyers or HDB upgraders. Some may not even need to take housing loans to complete their flat purchase.

Mr Alex Yam asked about the assistance provided to home seekers who own or have recently disposed of, their private property, but who urgently need housing support. Indeed, we recognise that not all private property owners are in exactly the same situation and not all have the same financial means. And that is why, to support this group, we had introduced two measures when we made this move to introduce the new wait-out period.

First, we exempted seniors who are moving from private property to a 4-room or smaller resale flat from the wait-out period, if both the senior and his spouse are 55 years old and above. This helps our seniors right-size their homes and improve their retirement adequacy. These seniors make up about three in 10 of the private property owners who had bought resale HDB flats in the past three years. Of these seniors, slightly less than one in five also paid a COV when buying a resale flat. So, that is the first – the exemption for seniors.

Second, regardless of their age, current and former private property owners who face extenuating circumstances can approach HDB for assistance and we will assess their situation on a case-by-case basis. Pursuant to this, HDB received some 650 appeals since the wait-out period was introduced. Two hundred and twenty of these home seekers had obtained an Option to Purchase (OTP) to buy an HDB resale flat before the wait-out period was put in place. For these home seekers, HDB has exercised flexibility and waived the 15-month wait-out period for all of them.

A second group of home seekers are those who have not obtained an OTP to buy an HDB resale flat, but who may have committed to sell or have recently sold their existing private property. HDB will assess these appeals on a case-by-case basis.

Mr Saktiandi Supaat asked about the possible impact of this move on the HDB resale market. As I explained earlier, the aim of this move is to moderate demand from private property owners cashing out and going to the HDB resale market, in order to give priority to first time home buyers, particularly during this period.

We will, however, consider the prevailing economic and market conditions, including the impact of the 15-month wait-out period, as we plan our half-yearly Government Land Sale (GLS) supply for private housing.

We have already increased the supply of private housing on the confirmed list of the GLS programme by 75%, from about 3,600 units in 2021, to around 6,300 units in 2022. We are prepared to increase the GLS supply further if needed. The Government will continue to monitor the housing market conditions and act decisively, but also carefully, to ensure the stability of the wider Singapore property market and to keep public housing inclusive, affordable and accessible to Singaporeans.

Thank you, Mr Speaker. I have one supplementary question for the Minister. With regard to one of the two exceptions, for those who are 55 years old and above, there is an exception made for them to purchase 4-room flats and lower, I would like to ask the Minister if MND believes that this may inadvertently also drive up prices in the smaller flat-size market – because, I think, the figure that was quoted earlier was three in 10 are in this category. Therefore, do MND and HDB see that there might be a rise in demand for the smaller flat types?

Ultimately, I think the cooling measures are important and I think it bears reiterating that MND remains committed to providing Singaporeans with affordable and attainable homes over the longer term.

Mr Speaker, Sir, as I said earlier, the intention of this wait-out period is to moderate demand from those who are existing or former private property owners. The private property market has gone up, an increasing number appear to have sold their private properties and to move into HDB flats. For seniors, we recognise that many of them want to do this in order to enhance their retirement adequacy – they want to right-size, they want to manage their financial situation as they go into retirement. So, we made this carve-out for our seniors. And as for why it is a 4-room flat and smaller, if your aim is to prepare for retirement and to enhance your retirement adequacy, then going to a smaller flat will give our seniors even more financial space, as they right-size from a private property to a smaller flat.

As I have said earlier, the private property owners or former private property owners moving into the HDB resale market make up about one in 10 of resale flat buyers over the last three years and, out of that group, seniors make up a smaller portion of that. So, three in 10 of that one in 10 are seniors above the age of 55 and, so, they are a smaller subset of the private property owners moving into the HDB resale market. Therefore, we will continue to watch and monitor the property market carefully and monitor the effects of the moves that we have made.

I would like to thank the Minister for his answers to my Parliamentary Question, which is slated for the next Sitting. I just have two supplementary questions, Speaker. One is, the Minister mentioned that there will be an enhancement, potentially, in terms of land sales for supply of flats, going forward. This would be in relation to my question about how the reduction of supply of private property in the market could drive HDB upgraders to splurge on resale flats.

So, my first question is, to what extent will that land sale lead to further increases in resale flats and what type of resale flats could that possibly be?

My second supplementary question is, with the higher interest rate environment, will there be significant impact in the context of this current environment to impact certain demographics, for example, like what the previous Member had mentioned about seniors, but also young individuals or young families? Will the high interest rates lead to further impact on them, going forward, into buying these resale flats?

I thank the Member for the two supplementary questions. The Member was concerned whether this wait-out period, which aims to moderate demand for resale flats by putting a wait-out period for private property owners coming into the resale market through the wait-out period; his concern is whether that would potentially reduce the supply of private properties on the private resale market and, hence, cause HDB upgraders who are actually wanting to buy those units, to then buy a bigger HDB resale flat and then exacerbating the condition.

HDB upgraders, firstly, I think, some of them will have an intention to upgrade from HDB to private property. So, that is first. You cannot rule out that some HDB upgraders will, of course, want to upgrade to a larger HDB flat. So, every HDB upgrader will have their own objectives and their own aspirations. But be that as it may, HDB upgraders will continue to have a wide range of options, which include HDB flats of varying sizes and across various locations, as well as new and existing private properties.

As I have said earlier, the Government has also ramped up the supply of new BTO flats and increased the supply of private housing on both the confirmed list as well as the GLS programme by some 75%, from 3,600 units last year to 6,300 this year, and we will continue to see whether we may need to make some adjustments if needed.

The Member also asked whether the higher interest rate environment will have a differential impact on different groups. Certainly. With the concern or the potential for higher interest rates in the medium term, MAS and HDB, therefore, took precautionary measures of a macroprudential nature by increasing, for MAS, the private financial institution rate floor ceiling for the taking of housing loans for residential housing and for HDB to institute a 3% floor for HDB loans. And, of course, we adjusted the loan-to-value, in order to protect home buyers who need to leverage and take loans in order to buy. But there is also an impact on existing home owners who were servicing their loans. Some of them are on fixed interest rates and the banks have mostly stopped these fixed interest rate plans for residential properties.

Then, the groups that are on adjustable interest rate loans, some come with a time lag, some follow the market and market interest rates immediately and some take HDB loans. For HDB, the interest rate remains at 2.6%. So, obviously, for these different groups, they will feel the impact either at different times or immediately. And, therefore, this will impact the groups differently. In terms of their outlay, they will have to stump up more in order to service their monthly mortgages.

Thank you, Mr Speaker. Just one supplementary question for the Minister. Would the Government consider exempting Singaporeans with genuine financial difficulties from the effect of the property cooling measures? The reason I am saying this is because these people may have difficulty servicing their existing loans for their condos, they may have existing debt issues arising from their own other financial obligations and they have no choice but to dispose of their current private property and they need a place to stay, they need a place to live. So, they need to buy an HDB property and they may not be able to afford commercial rental.

Indeed, this group of Singaporeans who are affected financially can approach HDB. As I said, there are two exemption measures. One would be for seniors, the other would be for any Singaporeans with extenuating circumstances, regardless of age. They can approach HDB and we will see how to help them. So, if the Member has come across any of them, please let us know.

Thank you. I would like to seek a clarification from the Minister. There is a wait-out period of 15 months; so, will there be an impact on the rental market because these residents probably will have to find HDB flats for rental? As a result, this might drive up the rental prices.

Certainly, those who own an existing private property and intend to wait out that period would find alternative accommodation, either to reside with family or rent. So, there will be those choices that will have to be made because of the implementation of this new measure. At the same time, it may also cause private property owners who are not seniors waiting to retire or, as Member Dennis Tan had mentioned, people who have financial situation. If they are thinking about whether to make this move now, this might cause them to postpone their decision. It achieves the effect also of moderating demand for resale flats at this time and gives priority to first-time home buyers who may be looking to the resale market for their first home.