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.

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?

EC prices look set to maintain current level

Recent low winning bids on land parcels may not be enough to lower executive condominium (EC) prices, at least not in the near future.

Most of the ECs which are being built or are nearing their TOP (temporary occupation permit) status are situated on land which were purchase by developers at high prices. Combined with rising construction costs and declining private home prices, prices of ECs may also face pressure. Property experts are expecting a similar 5 to 8 per cent fall in EC prices this year, similar to the prediction for HDB resale market and also the private property market.

TheTerraceECAs the price gap between ECs and private properties narrow, buyers may be swayed to the latter which allows them to immediately sell or rent. ECs, being a hybrid of public and private property, are still subjected to public housing rules which includes a minimum occupation period of 5 years before being allowed to sell. After 10 years, executive condominiums do become private properties.

In addition, developers who have secured land at lower prices may still wish to peg their units to current market levels instead of lowering it at first instance. This gives them the allowance of offering discounts later on.

Buyers who have been holding out for much lower prices may have a long wait.

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.

HDB resale market – Prices down, Sales up

15, 914 resale HDB flats were sold last year, compared to 14, 220 in 2013. Though the numbers were up in the terms of transaction volume, prices dipped slightly. Prices of resale flats in non-matures estates such as Punggol and Sengkang fell 8.3 per cent while those in mature estates such as Queenstown and Bishan saw a 3.1 per cent decline.
Pinnacle@Duxton_2015The largest drop were in the four- and five-room flats sectors. Prices of three-room flats remained the same while a 1.8 per cent increase may have cheered up some executive flat sellers. Recent additions to the resale market, flats at The Pinnacle @ Duxton, did extremely well, with 2 units already sold at $900,000 and $918,000. Property analysts are expecting four- and five-room flats here to hit the $1 million mark soon. With it’s prime location and unique design, plus it is only five-years young, that may not be such an impossible task.

Overall, the projected decline this year for the HDB market will mirror that of last, at a single-digit fall of 5 to 8 percent. And perhaps buyers will be buoyed by this news and have a good run this year as well. Industry experts are expecting a stable transaction level in the first 2 months of 2015, followed by an increase in activity in March after the Chinese New Year break.

Singapore home prices – The slow decline

Prices of residential properties, both private and public, may see a slow but continued decline in 2015. This year, the resale non-landed property market was ruled by an undulating price chart. After a recent rise in prices in October, prices once again fell in November. Property experts have found it impossible to predict future trends from such irregular movements and can only report the figures as they are.

Photo by ThinkStock.

Photo by ThinkStock.

In October for example, despite an increase in the number of mortgage sales and non-performing loans, prices of resale homes picked up nevertheless. Most of the information comes from URA’s quarterly statistics of private property transactions with caveats lodged. This however may not truly reflect home sales volume and prices, as they exclude factors such as developers’ discounts and rebates. But URA has mentioned disclosing prices of individual units in the near future. And perhaps a more frequent report would be helpful to the industry.

On the HDB resale front, the Minister for National Development, Mr. Khaw Boon Wan, has said that he hoped to see “single digit” fall in prices in 2015, indicating a gentle and gradual decline similar to that in 2014. The government is likely to tread lightly in this area as a drastic fall in home prices will bring about dissent from current home owners and will possibly affect their position in the next election. Buyers can expect a fall of about 8 per cent next year.

Marina Bay home sales show positive signs

Private home sales in the suburbs have been showing sign of strain as the increasing number of new completed condominium units compete for the increasingly limited number of buyers, which could be further limited due to loan limits, a downtown project seemed to be bucking the trend and pulling in sales in the luxury apartment sector.

Marina One Residences in the Marina Bay precinct secured half of the total number of home sales in October alone. But that could also be due to the fact that it was the only new launch in the month. 334 units of the 1,042-unit condominium were sold at the average selling price of $2,228 psf. However, sales were still lagging behind its initial preview launch when earlybird discounts were given, and sale prices hovered between $1,960 and $3,100 psf.

Marina ONe iprop watermarkDevelopers are finding it harder to attract the buying crowd and have found they are now more sensitive to pricing as it became more difficult to secure bank loans. Though the price fight is not evident yet, as buyers are still willing to fork out a considerable amount for properties in good locations, it may only be a matter of time before the cracks show. Especially since 2015 and 2016 will see an even bigger influx of completed private homes in the market.

For now, developers are focusing their efforts on selling remaining units at previously launched projects such as DUO Residences, Coco Palms and Lakeville condominium, thus holding back on new launches. Will this drive consumers towards other property types such as executive condominiums (ECs) and resale HDB flats or will they continue to seek better deals with the existing private property market?

New private condos threaten Rental Market

As more new private condominiums in the suburbs attain their occupation-ready status, the number of apartments available for rental has increased significantly and fierce competition has brought rental prices down. Though concentrated mainly in the suburbs, where most of the new condominiums are situated, the decline has dragged the rental market down by 1.5 per cent.

FOresta Mount FaberAnd as most of these new condominiums are in close proximity to HDB flats, the HDB rental market has also been affected somewhat as tenants now realised they may be able to afford a private condo after all and instead choose this option over HDB flats. And as this pressure is exerted on the HDB market, some HDB flat owners may consider jumping over to the private property market and the HDB resale flat sector may see some shifting as a result of the spillover effect.

From January to September of this year, there were a total of 6,621 condominium units entering the market in the suburbs alone. This has pushed rental prices down 5.3 per cent and a 1.3 drop in the number of rental deals signed in September alone. However, a year-on-year comparison with 2013 showed an increase of 11.8 per cent in terms of the number of units leased. This could signify a shift of tenants leasing private properties as opposed to HDB flats as the price gap narrows.

Eight RiversuitesMoving forward, 2015 and 2016 may see a vacancy rate of 10 per cent and more if immigration policies remain the same and if rental prices become even more competitive with up to 20,000 new units reaching completion annually. Is this a sign that the cooling measures have worked? Or is it merely a sign that investing in residential property may have to take a different slant, to focus on long-term profits through property appreciation rather than on short-term rental profits? How does that then change the criteria for property selection?