Get the Guru View: HDB resale - A buyer’s market

Upcoming BTO launches could draw demand away from the HDB resale market.

The HDB resale market has seen prices stay flat since Q2 2015. With an increase in the grants available for use, will this market start to see a pickup in 2017? We give you the Guru View.

By Chang Hui Chew

For the HDB resale market, the past few weeks have been an interesting time.

In late February, Minister for National Development, Lawrence Wong, announced that the CPF grants for HDB resale flats would increase from $30,000 to $50,000 for couples, and to $25,000 from $15,000 for singles, for four-room flats and smaller units. This increase in grants should help those young couples start their families sooner, as they have more incentive to buy a resale flat, rather than wait for a Build-To-Order (BTO) flat to complete construction.

In this edition of the Guru View, we examine the performance of the HDB resale market in 2016, and look at some likely implications in this year.

Flat prices

Despite the fervour around private property, most Singaporeans live in HDB flats, and their resale performance is an important bellwether for Singapore’s property market.

The HDB Resale Price Index (RPI) has remained flat since the second quarter of 2015, hovering between 135 and 134 (refer to Figure 1). This is likely due to affordability curbs such as the Mortgage Servicing Ratio (MSR), which limits how much monthly income HDB flat buyers can use to pay their housing loans.

Guru View - HDB Resale Price Index and Transcation Volume

 

 

 

 

 

 

 

 

 

HDB resale flats remain a very price sensitive segment, with many HDB flats in the same area largely similar products, differentiated only by factors such as height. Sellers who wish to ask for higher prices often see buyers seek the next cheapest offering, a likely factor that contributes to the HDB RPI’s lack of growth.

In March 2014, the state also abolished the practice of Cash-Over-Valuation (COV), where buyers and sellers negotiated on the additional cash to be paid to homeowners above the agreed upon value of the flat. This practice led to soaring resale flat prices, as sellers, in a bid to outdo their neighbours, asked for higher COV.

Without COV, sellers and buyers are now negotiating based on agreed upon valuations, rather than a perceived premium. This has led to a lot more sense in the process when sellers are pricing their HDB flats.

At the same time, HDB resale volumes have improved since its low point in 2014. In 2016, total resale volume saw a year-on-year increase of 7.8 percent to 20,813 units, from 19,306 units the year before (refer to Figure 2). This was led primarily by a growth in transaction volumes in four-room and five-room flats.

Guru View - HDB Resale Transactions by Flat Type

 

 

 

 

 

 

 

 

 

Upcoming supply

Sellers in the resale market also need to contend with BTO launches in 2017.

At the end of 2016, Wong announced that the HDB would be launching over 17,000 BTO flats in 2017. Over 4,000 units were launched in February 2017’s BTO exercise, with two popular mature estates, Clementi and Tampines, in the mix.

The next exercise in May is more highly anticipated, with the up-andcoming Bidadari estate offering more than 1,300 units. In 2016, Bidadari’s BTO launches saw more interest than supply could meet, especially with the larger units among applicants.

Bidadari’s popularity stems from the government’s plans for the areaas part of the extended decentralised Central Business District in Paya Lebar, as well as its convenient location in the city fringe, just minutes away from Dhoby Ghaut via public transport. Furthermore, the state’s urban planners have drawn up plans for a garden estate, with lakes, parks and suburban shopping centres.

While the HDB resale market continues to be propped up by demand from those who need to move with a degree of urgency, or who choose not to wait for a new flat to be built, the relatively lower price and the attraction of being the first occupant of the unit continues to draw buyers to BTO launches. This could potentially drain demand away from the HDB resale market, another factor that continues to keep prices in that segment suppressed.

Buyers undecided on the route to take, but are looking to live in popular estates could potentially wait for the next BTO launch, trying their luck at the ballot. It is only if they are unable to secure a BTO unit that they decide to enter the resale market.

Not so great expectations

According to PropertyGuru’s Property Sentiment Survey for H2 2016, more than half of the respondents felt that HDB resale prices are likely to rise over the next five years, despite the weaker macroeconomic climate and continued affordability curbs.

This is not necessarily a worrying sign, and suggests sense in the market. Most Singaporeans have their wealth tied up in their real estate assets, which are largely HDB flats. An increase in prices, especially one that is sustainable, will also imply an increase in wealth for many Singaporeans.

More importantly, price increases will need to come with an overall increase in wages, to prevent issues of affordability.

The increased grants are likely to help Singaporeans who want to buy a resale flat, especially in the more expensive mature estates. In the short term, they might motivate individuals who have been waiting on the sidelines to enter the market. Longterm however, the increase in grants might not necessarily move the needle significantly, if wages are unable to rise with housing prices.

To read more on the HDB resale market and rental market outlook, visit: bit.ly/hdboutlookh12017

Get the Guru View
The PropertyGuru News & Views This article was first published in the print version PropertyGuru News & Views. Download PDFs of full print issues or read more stories now!