(Bloomberg) — Singapore has imposed new restrictions on public housing in an effort to curb prices that threaten to become a political flashpoint in upcoming elections.

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The measures, which include a lower loan-to-value limit for financing from the public housing authority, are intended to promote a “stable and sustainable” market, according to a joint statement from the Ministry of National Development and the Housing and Development Council late Monday.

The affordability of social housing has become a contentious issue for the ruling People’s Action Party, which has governed the city-state since independence in 1965, and whose popularity has declined. Nearly 80 percent of households live in social housing, built by the state and sold at subsidized prices.

Prices for second-hand apartments have risen sharply in recent years — in some cases above S$1 million ($764,000) — due to pandemic-related construction delays for new homes and high demand for apartments in popular neighbourhoods. Last year, resale prices for public housing rose 4.9%, and in the first half of 2024 they are up more than 4%, according to government data.

Loan-to-value ratio

Under the new measures, loan-to-value limits, which determine the maximum amount an individual can borrow from the HDB, will be reduced from 80% to 75% of the property price or value. The cap on loans from commercial banks will remain at 75%. The changes took effect on August 20 and will apply to secondary market transactions and new residential units, known as build-to-order flats, from October.

“Given the continued strong and broad-based demand for HDB resale flats, these measures will help cool the market and encourage prudent borrowing,” the statement said.

The government will also increase housing subsidies by up to S$40,000 to make first-time home buyers more affordable for low- to middle-income earners.

What Bloomberg Intelligence says

The Housing Authority of Singapore’s reduction of the loan-to-value limit from 80% to 75% on public housing financing may slow price growth in this segment and slightly dampen gains in private housing. This is because it may affect affordability for public housing owners looking to move to private ones as resale price growth for their apartments slows down.

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– Ken Foong, Analyst

The study can be found here.

The government likely reacted because it noticed price outliers in the public second-hand housing market, said Alan Cheong, head of research for Singapore at Savills Plc. But the impact was limited, particularly because buyers of expensive apartments were likely to be high-income buyers who were less sensitive to credit limits, he said. The market will “continue to set records,” he said.

The restrictions mark the third time in less than three years that authorities have tightened rules on HDB home loans. Such mortgages, offered by the public housing authority, have lower interest rates than banks. Loan-to-value limits were cut from 90% at the end of 2021 and reduced again further in 2022.

The government is also trying to assuage voters’ discontent on this issue by increasing the supply. For example, it has promised to provide 100,000 social housing units for construction between 2021 and 2025.

In his first major policy speech since taking office in May, Wong said on Sunday the authorities were on track to meet the target. Last year, his predecessor Lee Hsien Loong also announced measures including new classifications to ensure that residential units in prime locations are subject to greater restrictions before being sold to prevent speculation.

But the measures have so far failed to calm the market significantly. The price index for used public housing has risen for 17 consecutive quarters, while the number of transactions above S$1 million doubled in the first half of the year to a record 419. Wong acknowledged on Sunday that such deals had become “a major concern for home buyers”.

The new ownership restrictions come as Wong prepares to lead his party into the next election, which must be held by November 2025. The vote will be the first since the PAP posted its worst-ever parliamentary result in 2020 – despite winning 89% of seats – due in part to economic concerns and a younger generation more open to a larger role for the opposition in government.

Singapore’s housing race leads to early marriages that some regret

Wong also pledged on Sunday to keep housing affordable, including increasing housing subsidies for low-income couples. He said his government would look into what more could be done to ease housing concerns among single people.

In April 2023, the government attempted to curb the boom in private homes by taking additional cooling measures, including doubling stamp duty for most foreign buyers to 60% and increasing levies for buyers of second homes.

The Monetary Authority of Singapore last month downplayed the need for further cooling measures in the private real estate market, saying there were no signs of overexposure of the real estate sector to the banking sector. “We do not see any need to take any action at this time,” central bank governor Chia Der Jiun said at the time.

(Updated with analyst reactions, chart, more context from paragraph 8)

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