DEMAND for homes under $1.5 million is expected to increase thanks to recent cooling measures aimed at preventing buyers from over-extending themselves.
Property consultancy Knight Frank said in a report that demand for lower-priced, non-landed private homes is likely to be healthier as the measures restrict the maximum term of loans.
It offered some examples to show the impact of the latest cooling measures on affordability.
For instance, a home buyer aged 35 with a monthly household income of $12,000 can now afford a residential property with a maximum value of $1.5 million to $1.6 million on a 30-year loan period.
This assumes a debt-servicing ratio - a buyer's total monthly debt payments divided by net income - of 35 per cent, which is the recommended position of affordability, the report noted.
An older home buyer aged 40 years with a similar monthly household income can now afford a home that costs $1.3 million to $1.4 million. This takes into account a 25-year loan term under the new rules.
These buyers could look to District 19 - comprising Hougang, Sengkang and Punggol - to meet their housing needs.
The area has the highest concentration of homes of at least 70 sq m in size sold for under $1.5 million in the past four months, Knight Frank said.
It is followed by District 18, which includes Pasir Ris, Tampines and Simei.
The sixth round of cooling measures introduced last month sought to restrict all home loans to more reasonable time frames, of up to 35 years.
Home buyers who take up a loan that lasts more than 30 years or extends past their retirement age of 65 will now have to fork out much more in cash.
Where previously a buyer may borrow up to 80 per cent of the property's value for his first mortgage, he can now do so for up to 60 per cent if he busts the 30-year loan or 65-year-old age limit. Under a similar scenario, the borrowing ceiling shrinks to just 40 per cent for his second and subsequent mortgages.
Knight Frank added that overall demand for homes could moderate in the coming quarter as the pool of local investors and foreign buyers thins on the back of multiple rounds of cooling measures.
Investors who have already bought homes would also be monitoring the market changes before making their next move.
"Any potential lower demand coupled with ample upcoming supply of new homes will put downward pressure on residential property prices.
"Competition in the secondary market will set in if the economy cools and unemployment rate increases," it added.
The firm expects overall prices to increase marginally by around 0.1 to 0.3 per cent in the last three months of the year.