Singapore home prices remain muted

As long as the property cooling measures are here to stay and global economics remain shaky, home prices may hover at the current levels.

ArdmoreIIIAnd as the government continues to roll out more new build-to-order (BTO) flats while keeping the loan ratio capped at 30 per cent, demand for resale HDB flats may continue its lacklustre run. Although there was a 0.1 per cent rise in HDB prices in Q2, prices were mainly flat and private home prices dipped further by 0.4 per cent, that is following a 0.7 per cent fall in Q1. Some property players have viewed the private property market as possibly reaching the bottom of the cycle.

Since the last market peak in 2013, HDB and private home prices are now 9.8 per cent and 9.4 per cent lower respectively. There have been some signs of recovery in Q2 as private property prices in the core central region (CCR) rose 0.2 per cent. Developers have also been actively seeking out sales by offering creative payment schemes and keeping sales volume to a respectable level.

Considering the average length of a property lull being 8.4 quarters, this cycle may already have reached the end of its run. Will a prolonged cycle mean an even sharper and more drastic rebound when the measures are loosened? How will the market then respond to that and will there be any drawbacks?

2016 – Property cooling measures to stay

Remember those days of astounding COV (cash-over-valuation) prices? Those days may be but a shadow of the current market environment today. More than half of resale HDB flats sold now are selling at prices close to market value and prices are now comparable to those of 2011.

Tampines HDB flatPhoto: Resale HDB flat for sale in Tampines.

National Development Minister Lawrence Wong has however said that it may be too early to lift the property curbs, most of which were implemented in 2013, during the peak of the property market. Since then, HDB resale flat prices have fallen about 10 per cent, according to the HDB resale price index.

Some of the most impactful measures include the Additional Buyers’ Stamp Duty (ABSD) and Total Debt Servicing Ratio (TDSR) framework. For HDB loans, the mortgage servicing ratio was tightened to 30 per cent of the loan applicant’s gross income.

With the property cooling measures here to stay, this year’s resale flat prices may remain level, with some fluctuations should there be economic or interest rate changes. HDB’s announcement of their expected 18,000 new BTO units this year may dilute demand for resale HDB flats, though prices are not expected to fall much as most buyers will be those who do not wish to or are unable to wait 3 to 4 years for the new BTO flats to be built. The motivating factors for selling or buying a resale unit may be what lays the foundation for the final transacted price.

Punggol flats selling for record prices

Punggol used to be equated with faraway and ulu (colloquial word meaning remote). But some HDB flats which have just reached the end of the MOP (minimum occupation period) of 5 years have just made a killing in the property market.

Treelodge@Punggol HDB

Photo credit: HDB 

A recent sale of one 5-room HDB flat in Punggol transacted at $760,000, which is a record high considering Punggol is still under development and is still considered a non-mature estate. But the high price was warranted, considering it was one of the only 14 loft-type units available in Treelodge@Punggol which is in turn HDB’s first eco-friendly development. It was also on a high floor somewhere around the 16th to 18th floor and had a much larger floor area of 147 square metres.

Punggol-northshore.jpg;wae44a5d811a611cfaPhoto credit: HDB

As most of the flats selling in Punggol are new, most are just slightly older than 5 years, they are commanding high prices. Prices are rising as demand increases. 3-room flats at Treelodge@Punggol were selling for $520,000 to $548,888 in October this year and at yet another popular project, Coralinus, 4-room flats went at around the same price.

But as HDB injects more BTO units into the estate, with Northshore Residences I and II, the estate might see a sudden rise in population and perhaps also market competition in 3 to 4 year’s time.

BTO Flats in less mature estates sold for more

Punggol Northshore, one of the latest BTO (Build-to-order) HDB flat offerings in Punggol, proved popular with young families and couples. The response may have been surprising 10 years ago, when the area was still underdeveloped and considered far-flung. But now, as the amenities have built up over the years, those who have bought units in Punggol and Sengkang in the earlier years are reaping the ripe profits.

Punggol HDB EstateMost of the resale HDB flats which sold in these 2 HDB estates have tripled their original purchase prices. Four-room flats in Sengkang once cost $205,000 but now they can sell for as much as $566,880 in average on the resale HDB flat market. The lowest recorded sale was $410,000, double its original price tag. Property analysts have placed the HDB price index at a 90-per-cent increase since the launch of the system in 2002.

Once costing buyers $178,000 at its highest in 2003, prices of these BTO flats have since appreciated over the past 10 years. Most BTO flats take 4 years to be completed, and buyers have to fulfil a 5-year MOP (minimum occupation period) before being allowed to list their flat in the resale market.

It was once thought that older flats in mature estates were able to fetch higher prices, but these newer BTO flats are beating them at their odds; mostly due to the young age of the flats which means they will also be in relatively better condition, have more years left in their lease, and possess a higher potential for growth in terms of property prices once the less mature township is developed.

HDB flat prices – New versus Resale

Do prices of BTO HDB flats rise in parallel to resale units? No, says the Singapore Government.

In line with their aim to keep new flat prices affordable for first-time buyers, National Development Minister, Khaw Boon Wan, has emphasized that BTO flat prices are in no way linked to the market prices of resale HDB flats.

Tampines Court BTO HDB flats, part of HDB's latest January 2013 launch. Photo by HDB.

Tampines Court BTO HDB flats, part of HDB’s latest January 2013 launch. Photo by HDB.

Addressing concerns that BTO prices may be dancing hand-in-hand with resale HDB flats, which have been on the rise for the past few quarters, Mr. Khaw promises to provide abundant and affordable housing to match the projected 6.9 million population of 2030. He says that as long as ‘property remains hot’, the new pricing policy of de-linking BTO flats to resale HDB flats will continue. It looks like this policy may have to stay for quite some time yet, as market feedback shows that prices are still going strong and have barely shown signs of letting up.
Industry players are not expecting the new HDB flats to take too much away from the resale flat market. SLP International’s head of research Nicholas Mak says that low prices of new flats may ‘effectively slow down the resale market but will not stop or reverse rising trends yet’.  However, Mr. Khaw did mention that although BTO prices will be priced differently from resale flats, there will be differences within its own category. He says HDB will not be pricing its new flats ‘haphazardly’ but instead, buyers can expect prices of BTO flats in mature estates to be up to 40 per cent more than those in outlying suburbs.

This keeping of prices low does come at a price. Taxpayers are essentially paying for the gap between new flats and resale flats. Because HDB purchases land from SLA (the Singapore Land Authority), land prices are based on the prices of resale flats in the vicinity, thus if resale flat prices are rising, land is more expensive, but if new flat prices are still kept low, the amount difference is made up by government subsidies, which indirectly comes from the taxpayers’ coffers.