Million-dollar HDB resale flat transactions: Will they be affected by the new cooling measures?

2021 saw a double-digit price growth of 12.5 per cent for HDB resale flats, as well as a record number of million-dollar flats sold within the first five months of the year. In the same year, we saw the most expensive HDB resale flat transaction at $1.36 million.

With all these headlines, many of us can’t help but think that HDB resale flats are becoming more unaffordable and out of reach. There’s also been a lot of discussions about how the sellers are profiting from the sale of these rare flats by putting them up at sky-high prices.

PLH model and 85 per cent LTV: Measures to moderate the HDB resale market

So in an attempt to curb the lottery effect, the government introduced the Prime Location Public Housing (PLH) model in late October last year. Flats under this new model come with more restrictions, such as a 10-year Minimum Occupation Period (so that people don’t just buy the flat to flip it) and a $14,000 income ceiling for resale buyers.

And last December, a new round of cooling measures were introduced. These include:

• Increasing the Additional Buyer’s Stamp Duty (ABSD) rates for Singaporeans to 17 per cent for the second property, 25 per cent for the third property onwards
• Increasing the ABSD rates for PRs to 25 per cent for the second property, 30per cent for the third property onwards
• 30 per cent ABSD for foreigners
• Tightening of the Total Debt Servicing Ratio (TDSR) to 55 per cent
• Tightening of the loan-to-value (LTV) ratio to 85 per cent for HDB housing loans

In general, these measures are aimed at curbing transactions by property investors. The increase in the ABSD rate, for instance, doesn’t affect HDB buyers since they cannot own more than one property when buying a flat.

However, one cooling measure that will affect HDB buyers is the LTV, which was lowered from 90 per cent to 85 per cent. This means that if the buyer takes an HDB loan, their cash downpayment has increased by 5 per cent.

Given the recent round of cooling measures, we want to see if past cooling measures had any impact on the million-dollar flat transactions. To be more specific, we want to see if there’s a lower number of million-dollar transactions after each round has been introduced.

Have past cooling measures affected the number of million-dollar flats sold?

The first million-dollar flat transaction was in July 2012 for a 150 sqm executive apartment at Mei Ling Street in Queenstown .

So we’re looking at cooling measures from July 2012 onwards.

October 2012

The first round of cooling measures since that record-breaking sale was in October 2012, which saw these cooling measures:

• Mortgage tenures capped to 35 years
• For loans that are longer than 30 years or extend beyond the retirement age of 65, the LTV was lowered from 80 per cent to 60 per cent for the first loan. For the second loan onwards, the LTV was lowered from 60 per cent to 40 per cent

In the same month, the second million-dollar flat transaction was recorded.

January 2013

Another round of cooling measures came in January 2013:

• ABSD for citizens: 7 per cent for the second property, 10 per cent for the third property
• ABSD for PRs: 5 per cent for the first property, 10 per cent for the second property
• ABSD for foreigners: 15 per cent
• LTV for a second housing loan: 50 per cent, third loan: 40 per cent
• Mortgage Servicing Ratio (MSR) for HDB loans: From 40 per cent to 35 per cent, 30 per cent for bank loans
• PRs cannot rent out the entire HDB flat

Between January and June 2013, just two flats were transacted for at least a million dollars — one in April and one in May 2013.

June 2013

Six months later, came the introduction of the Total Debt Servicing Ratio (TDSR). It limits the monthly repayments for home loans to 60 per cent of the borrower’s monthly income.

August 2013

Two months later, another round of cooling measures were introduced.

• PR households need to wait three years after getting their PR before they can buy an HDB resale flat
• Maximum tenure for HDB loans: reduced from 30 to 25 years. For bank loans of HDB flats, they were reduced from 35 to 30 years.
• New loans that would exceed 25 years would have tighter LTV
• MSR: Reduced from 35 per cent to 30 per cent

After this round, just one flat was transacted for at least a million dollars in November 2013.

December 2013

There were also cooling measures specifically for Executive Condominiums (ECs) :

• Cancellation fees: reduced from 20 per cent to 5 per cent
• Resale levy for second-timer applicants buying EC
• MSR of 30 per cent will apply to ECs as well

After that, no cooling measures were introduced until March 2017.

In general, from 2012 to 2014, million-dollar flat transactions were very rare. They were like once-in-a-blue-moon kind of rare, as there were only two to three transactions in each of these years. For instance, 2014 only saw two such transactions — one in October and one in December.

(You can hover over each bar to see the number of transactions for that month.)

As we take a closer look at the data, the number of million-dollar flat transactions only started increasing from 2015 onwards. This was the year when there were months with more than one million-dollar transactions.

And we notice that from May 2016 till date, there’s at least a million-dollar transaction every month.

March 2017

Three years since the last round of cooling measures, these were introduced:

• The Seller’s Stamp Duty (SSD) was lowered for each tier and would only apply for properties sold within the first three years
• TDSR would not apply for mortgage equity withdrawal loans with LTV ratios of 50 per cent and below

The same month saw four million-dollar flat transactions, which was considered high back then as the monthly transactions didn’t go beyond four in the previous months (apart from August 2016). In the following month, there’s a drop to two transactions.

But in general, there’s an upward trend between March 2017 and July 2018, with six transactions in May 2017 and nine in July 2017. Monthly highs recorded include eight transactions in March 2018 and 11 transactions in June 2018 (right before another round of cooling measures were announced).

June 2018 also marked the first time that the number of million-dollar flat transactions hit double digits in a month.

July 2018

This would be the last round of cooling measures before the latest one in December 2021:

• ABSD for individuals buying second property onwards: raised by 5 per cent
• ABSD for foreigners buying any property: increased by 5 per cent
• LTV limits: reduced from 80 per cent to 75 per cent for bank loans

Compared to the previous month, there’s a drop by nearly 50 per cent to six million-dollar flat transactions in July 2018, before going up again to nine in August 2018. Afterwards, the monthly number of such transactions didn’t change much, hovering between four to nine between September 2018 and September 2019.

We notice there were distinct drops in October 2019, December 2019 (probably since the end of the year is usually a lull period) and April 2020 (when Circuit Breaker started) as million-dollar flat transactions were just one or two in each of these months.

Interestingly, such transactions hit double digits again at 10 in March 2020, just as the pandemic started.

After Circuit Breaker ended in June 2020, the number of million-dollar flat transactions was generally on an upward trend, with at least 10 transactions recorded every month.

It even hit over 20 transactions in October 2020, and over 30 in December 2021, the same month the latest cooling measures were announced.

What can we learn from the past data?

Million-dollar flat transactions were very, very rare between 2012 and 2014.

So if we were to look at how cooling measures may impact the number of million-dollar flat transactions, it would make sense to only look at the data after the March 2017 cooling measures, when each month saw at least one million-dollar flat transaction.

In general, we notice there’s a drop after cooling measures were announced. This includes the drop in April 2017, July 2018 and more recently, January 2022. With 27 flats sold for at least a million dollars, there’s a 25 per cent drop from the 36 transactions in December 2021 when the recent cooling measures were announced.

Last month’s drop may be due to the lower LTV for HDB loans, especially given the increased cash down payment. But it could also be due to the lull period as people would usually avoid buying a house close to the Lunar New Year period.

With the generally increasing trend after the March 2017 and July 2018 cooling measures, it seems like they don’t have much effect on million-dollar flat transactions.

At the same time, it could also be that the cooling measures were not aimed at most HDB owners and sellers in the first place. For instance, the SSD doesn’t apply to them due to the five-year MOP, in which they cannot sell the flat. Those buying HDB also cannot own more than one property, so the increase in ABSD doesn’t affect them.

Will the new cooling measures affect the million-dollar flat transactions?

The lowered LTV for HDB loans announced recently may lead to lower HDB resale flat prices in general. As a few experts pointed out , it may encourage buyers to be more prudent in their flat purchase.

Nevertheless, the lowered LTV may not necessarily affect the million-dollar flat transactions.

Since the income ceiling for the HDB housing loan is $14,000, those who can afford to pay at least a million dollars are probably not eligible for this type of housing loan in the first place. Instead, they may opt for a bank loan with a much lower LTV of 75 per cent and a lower interest rate, resulting in lower monthly installments.

Or if they’re cash-rich, they’ll probably just pay it fully in cold hard cash. Just like what an elderly couple did when they bought a resale flat in July 2020 in Clementi after downgrading from landed property.

This article was first published in 99.co.