Resale and New HDB Flats – Price gap narrowing?

Have the price tag on new BTO HDB flats truly gone down, as the Minister of National Development, Mr Khaw Boon Wan has promised? Or are prices of new flats still considered high? What about resale flats?

WestRockHDB flatA recent survey has shown that most still think new HDB flats cost between $300,000 and $400,000 for a four-room unit. That is almost $100,000 more than the actual average of $295,000 for a new flat. Resale four-room HDB flats can easily range between $320,000 to more than $500,000 depending on location and floor area.

The average price of a new 3-room HDB flat currently stands at $186,000. But perhaps buyers have been using resale HDB flats as a gauge of value and have been expecting new BTO flats to cost between $200,000 to $300,000.

Since most of the individuals surveyed were willing to pay about 20% more than the actual prices of new HDB flats, what does this indicate about the resale HDB flat market? Are buyers getting used to the higher prices of public housing? Should the authorities work to keep new and resale flat prices as what they are? Is public housing truly affordable and has enough been done to keep the market just so?

Photo credit: HDB

 

 

Resale HDB flats – Sales go up as prices do down?

2014 saw a record low number of HDB resale flats exchanging hands. It could be due to the effects of the property cooling measures, in particular the TDSR (Total Debt Servicing Ratio) framework set by the Monetary Authority of Singapore,  just starting to kick in. Buyers were more wary and more careful in weighing their options while sellers were still unwilling to lower prices. The tussle was just beginning.

SeaHorizonECBut this year, it seems one side is starting to give, slightly; especially for those who need to sell their current flat within the stipulated time of collecting the keys to their new flat, or face forfeiting their deposit. Prices of resale HDB flats have dropped 0.8 per cent in March this year, and the number of transactions increase from 1,148 to 1,349., As the number of new BTO (Build-to-order) HDB flats which will be launched this year decrease, buyers may also begin turning to resale flats to fulfil their needs. Prices of four- and five-room flats fell the most at 1.1 per cent and prices have been dropping since a year ago.

Property experts continued to stick to their forecast of a 5 to 6 per cent drop in resale flat prices this year, and hope for a higher sales volume than last year. It all depends on how the market fares from now till June, just before the traditional lull period of the Hungry Ghost Month.

Prices of rare HDB flats such as ECs (executive condominiums) remained high however, in fact showing a rise of 1 per cent last month.

Will adjusting HDB income ceiling help “Sandwich class” own a home?

As earning power climbs, the combined household income for an increasing number of families now fall just above the income ceiling for public housing. This puts them just out of reach of a new HDB flat yet still quite a distance away from being able to afford a private property, especially as inflation and the financial stress of providing for a family kick in.

Forestville Executive Condominium.

Forestville Executive Condominium.

The combined household income ceiling for a new HDB flat currently stands at $10,000 while the same for an executive condominium (EC) is $12,000. The income ceiling was last raised in 2011, from $8,000 to $10,000 for HDB flats and $10,000 to $12,000 for ECs. Over the last five years, there has been a significant increase in the number of couples and families falling into the “sandwiched class” of middle-income households in Singapore. Especially as Singaporeans now tend to marry late in life, when the husband and wife’s earning capabilities are at a certain level which puts them just beyond qualifying for a new HDB flat might be facing the most headaches.

Is there a way around it as public housing was originally aimed at helping those in need. But since there might always be a section of the population who will find public housing out of reach and private housing too much of a financial burden or risk, will raising the income ceiling really help elevate their circumstances only to be a burden to yet another group of citizens? What other options are available for these middle class families? Will they be looking at resale HDB flats as the only viable and affordable option?

Could lower resale HDB flat prices be a good thing?

Although HDB resale prices have dipped 0.6% last month, sellers could  turn the seemingly negative into a positive as this may mean that more buyers will see the market as flattening and be willing to purchase from the resale market instead of applying for a new one directly from HDB.

As HDB has been active in rolling out a massive number of new BTO and EC flats in the past few years to comply to demand from citizens, especially young families and multi-generational families. Even singles now have an option of buying new 2-room flats directly from HDB. Previously they could only purchase from the resale market. The increased supply of HDB flats has meant that more families and young couples have been successful in securing their new HDB flat, leaving less buyers for the resale market.

DoverHDB flatBut may sellers find themselves unable to raise their asking prices by too much as most buyers will be restricted by the TDSR (total debt servicing ratio) line which banks now have to toe. Loans will now be capped at 30 per cent of the gross monthly income. Part of last month’s drop in sales volume and prices could be due also to the Chinese New Year festive season.

Industry experts are expecting prices to drop further or maintain its status quo at least for awhile more. Any rise will be short-lived and a temporary anomaly. It may only be a question of how soon the buyers will return to the market. Are they waiting for prices to lower even further? What will make them change their mind and give them the push to purchase now?

HDB property market – Has balance been struck?

The last four years saw aggressive moves by the Housing Development Board to release and build new HDB flats. In 2014 alone, 51, 598 new HDB flats were added.

Has this supply of new flats been effective in stabilising the property market? Is the supply and demand scale now balanced? Minister for National Development, Mr Khaw Boon Wan, has mentioned that the increased supply has helped move the selling price of HDB flats down, yet at a gradual pace and margin which buyers are still able to stomach.

WEst Rock HDB FlatFrom this year on, the number of new HDB flats will begin to decrease, from 50,796 this year to 38,316 in 2018. Which could mean that this year might be the watershed year for the HDB market. Will buyers be taking the opportunity to purchase before supply becomes tighter once more? Or will the number of HDB flats which have been released thus far be able to provide for a stable resale market, keeping a level playing field between buyers and sellers?

As Singapore grows in population size, and global and domestic economies fluctuate, all this would also be tightly linked to population and immigration policies. With the election possibly coming our way next year, buyers may take the chance to look out for opportunities to upgrade property-wise this year, or perhaps wait and see what the post-election changes may bring.

Applying for a HDB loan – Do it early

If you’ve been waiting for ages to qualify and apply for a HDB flat, the housing development board has advised against last minute loan applications.

Not only does the process help you get a firm grip on your finances, it also helps give you a better idea of how to plan for the future. A HDB loan eligibility letter will tell you how much you are able to loan from the Housing Development Board (HDB) should that option be your mortgage financier of choice. Some buyers may opt for a bank loan instead.

MacPhersonSpring_HDB

Photo credit: HDB

But if you’re buying a BTO flat directly from HDB, they will require a HDB loan eligibility letter when booking a flat. This is to prevent buyers finding themselves in a bind, unable to acquire sufficient loans after they have already booked a flat. Previously, they were only required to have the HDB loan eligibility letter when signing the Agreement for Lease which could be a number of months after booking a flat.

Though this may not affect those looking to purchase a resale HDB flat, some buyers who may original be considering a BTO flat may change tracks and also consider resale options should they qualify for a higher loan quantum. Will this then be a boost for the resale HDB flat market?

The latest BTO launch in February consists of flats, including larger 3Gen (3-generation) flats, in non-mature estates such as Bukit Batok, Housing and also the mature estates of Geylang. The new McPherson Spring flats in Geylang are situated near the MacPherson MRT station and may be the first to be booked up. For singles who are now able to purchase 2-room BTO flats directly from HDB, those in Housing may be hot property. Applications will close on Tuesday and it may be some time before the next launch in May.

Resale HDB flats – The 2015 outlook

Across the board, property prices dipped slightly last year, and it was the same in the resale HDB flat market. The last month of 2014 showed a 10 per cent fall in prices, and the Minister for National Development, Mr Khaw Boon Wan, has mentioned an estimated single-digit drop in prices this year.

SeaHorizonECResale flats in mature estates are however holding their own. Prices remained resilient mainly due to the rarity of units in these saturated estates and good locations. In non-mature estates such as Bukit Batok, Bukit Panjang, Choa Chu Kang, Hougang, Jurong East, Jurong West, Punggol, Sembawang, Sengkang, Woodlands and Yishun; resale flat prices fell 0.9 per cent in December, while a rise of 0.2 per cent was reflected in the mature estates sales figures.

The price decline was mainly attributed to stricter mortgage servicing ratio limits and a tightening of immigration  policies. Singapore permanent residents are now required to wait 3 years before being allowed to purchase resale flats.

But it were the larger four- and five-room flats which experienced the fall more than three-room resale flats whose prices remained level. And on the higher end of the public housing spectrum, executive flats prices rose 1.8 per cent. As a rare commodity, a hybrid which crosses smoothly from public to private housing, executive condominiums are much sought after. Though the recent close launches of a few EC projects are the same time may have reduced the percentage of uptake per development.

Industry experts are expecting sales to remain low in the first 2 months of 2015, and pick up after the Lunar New Year, perhaps even a slight rebound in the later half of the year.

2015’s HDB resale property market

Following the hash of cooling measures implemented and enforced over the last couple of years, prices of resale HDB flats have been on the decline since 2014. The dip may continue this year, and into 2016 but at a manageable rate. A fall of 5 to 8 per cent is expected this year, similar to the last.

Sembawang Breeze HDB

Photo credit: HDB

A look back at the past decade will see a huge and quick rise of resale flat prices since 2006. Some flats were even looking at a 95 per cent rise in prices. Much of the price rise was effected by the COV (cash-over-valuation) system. Since its removal last year, prices have began to fall, though very slightly.

What are the factors leading to this fall in HDB resale flat prices?

  1. A increased supply of BTO (build-to-order) flats
  2. Lowered MSR (mortgage servicing ratio) with a loan tenure period limit of 25 years (down from the previous 30 years)
  3. Allowing singles to apply for 2-room HDB flats directly from HDB instead of on the resale market
  4. Making it easier for second-timers to purchase directly from HDB
  5. A 3-year waiting period for Singapore Permanent Residents (PRs) before they are allowed to purchase HDB flats

Sellers and buyers may have taken 2014 to get used to the new measures and the price adjustments certainly showed as such. But 2015 could be the year where buyers come back into the market as prices become more palatable, and transaction volumes may be boosted by HDB’s scaled-down BTO supply.

For sellers, the dip may not be such a bad thing, yet. The price decline is fairly gentle and with the current prices, they will hardly make a loss, just not as much of a gain as before. It could be a win-win situation for all if the timing is right.