Mortgage cap continues to limit resale HDB flat market

One of the more impactful property cooling measures implemented in recent years have been the Total Debt Servicing Ratio (TDSR) framework and the mortgage servicing cap for HDB flats, which limits the percentage of one’s gross income which can be used to service a loan for a HDB flat to 30 per cent.

SengkangHDB

Resale flat prices have been deflating for 2 years now and looks like it will be flatlining this year. Since its peak in April 2013, resale HDB flat prices have fallen 11 per cent and many transactions are now closed sans Cash-over-valuation (COV). The second half of last year did however see a slight increase in prices. With the selling prices of recent transactions quite transparently and clearly reflected by HDB, buyers are now more aware of the current market climate.

The number of transactions in January fell 121 units from December, and prices fell 0.5 per cent. But this may be due to the busyness which January brings for buyers and sellers and property analysts are not overly worried about the HDB market as prices and sales volume are only expected to remain level this year. The stability may be a good thing this may be the much-needed rest period before a market rebound.

 

Resale HDB flat prices stabilising

HDB resale flat prices fell a mere 1.5% last year, buoyed by a 0.2% rise in the last quarter of 2015.

Skyline Bukit Batok HDB BTO FlatPhoto credit: HDB

With the lowered prices of resale HDB flats, there may be an increase in sales volume this year as buyers have found many of these sans-COV (cash over valuation) resale units more affordable. Price-wise, property experts are looking at a 1 – 2 per cent movement, with prices staying quite stagnant this year. More young couples and upgraders may also be moving into the private property market as the total quantum prices of units have come down to a much more palatable level.

According to Minister for National Development Lawrence Wong, resale flats are mostly selling at market value, with prices comparable to that of 2011. Some of the property cooling measures which have been implemented since that which have taken effect, and which may continue to do so include the mortgage servicing cap of 30 per cent, the 25-year maximum loan tenure limit, and a 3-year waiting period for permanent residents before they are allowed to purchase resale HDB flats. Demand may also have waned as singles are now able to purchase new 2-room BTO flats directly from HDB and 18,000 new flats are to be rolled out this year with the first launch in February.

Though this may point to the market bottoming out by end of 2015, two consecutive quarters of price increase is required before a clear sign of a market rebound can be confirmed.

Resale HDB flat prices expected to stablise

It seems like 2016 could be the year when things stand still. Good for some, and a little less ideal for others. But either ways, it may be a good time for the dust to settle, for the market to finally take stock of the property cooling measures and interest rate hikes, to balance the supply and demand scale, and for the authorities to closely monitor and plan their next steps.

HDB mature estatePhoto credit: Singapore Tourism Board

Prices of resale HDB flats have stayed the same last November and December, perhaps signalling a stabilisation of the market. There was a slight 0.3 per cent and 0.1 per cent rise for 3- and 4-room flats, but a drop of 0.4 per cent for 5-room flats and ECs (executive condominiums). Flats in mature estates are still in demand, with a 0.2 per cent rise in prices, though in comparison, prices fell the same percentage in non-mature estates.

It has taken resale HDB flat prices some time to fall a narrow margin, thus a soft landing could be said to have been achieved considering last year only saw a 1.3 per cent drop in price index. Property experts are expecting prices to hold at their current level for the rest of the year despite HDB’s announcement of their intended launch of 18,000 new BTO flats this year, as the target audience for both flat types are different, with those searching within the resale HDB market most likely requiring a HDB flat in the short term. New flats typically require 3 to 6 years to build.

 

Private property market- Volume versus price

Stock of unsold private property units have been falling. At 25 per cent lower this year as compared to 2013, the improving take up rates could be chalked up to pent-up demand from buyers and lowering property prices.

Sol AcresPhoto: Sol Acres Executive Condominium

But the question remains, could sellers and investors expect a quick turnaround next year with profits and rental yields increasing? Resale property prices have dropped 6 to 11 per cent since 2013 and while sales volume has risen, the property rental market remains quiet. In fact, rents have softened this year and with the impending boom in supply of completed residential units next year (including executive condominiums or ECs and HDB flats), the rental market may be facing competition that’s tougher than before.

There are currently more than 300 unsold units the executive condominium (EC) market in projects such as Sol Acres, The Criterion and The Terrace. Developers of these and other private projects with unsold stock might be pressured to move these units next year as some may face restrictions such as the Qualifying Certificate penalties and the Additional Buerys’ Stamp Duty (ABSD). The latter not only affects developers, but also buyers who are also further restrained by the Total Debt Servicing Ratio (TDSR).

The PanoramaPhoto: The Panorama

Prices of developer-sold new properties have already been on the decline this year. At The Panorama in Ang Mo Kio, prices fell fromr $1,343 psf to $1,226 psf within 10 months. Similarly in Sims Urban Oasis, prices have dropped $112 psf to $1,285 psf in 9 months.

2016 begins in less than a month, and everyone will be keeping a keen eye on the first quarter for the tone it sets for the year ahead.

Moderation of HDB flat prices modest

HDB flat prices rose 50 per cent between 2009 and 2013. With the property curbs in the last 3 years, prices have fallen 10 per cent. The government are considering the decline moderate and have mentioned that it is not yet time to completely reverse the process and policies despite recent figures showing a stabilisation of resale flat prices and a rise in sales volume.

Yishun HDB

Photo: HDB flat in Yishun

The most effective cooling measures thus far have been the 2013 implementation of the mortgage servicing ratio limit. The loan amount home buyers were able to take to service a HDB flat loan was capped at 30 per cent of their gross income. On top of that, there was a 60 per cent Total Debt Servicing Ratio (TDSR) which was also introduced in 2013 to prevent borrowers from over stretching themselves with the number and amount of loans payments.

Industry experts are mostly in agreement about a sudden and drastic switch in policies which back backfire on the industry and property market. But some have felt that certain measures such as the ABSD (additional buyers’ stamp duty) could be lifted in phases to encourage property investment. The current rule requires foreign property buyers to pay an additional 15 per cent of the price of a property here while Singaporeans have to do the same but at 7 and 10 per cent for second and third subsequent properties.

The new National Development Minister Lawrence Wong has however mentioned that adjustments may be possible, depending on global and local economic situations.

 

Maxing the potential of HDB Housing Grants

The General Elections of 2015 have brought about some changes in the local housing and property scene. With raised income ceilings for new flats and executive condominiums, plus a series of other adjusted or new housing grants, more HDB flat applicants are able to now secure a unit and at less by making use of these new grants.

HDB flats 10The new Proximity Housing Grant provides singles and families who are buying a resale flat with or near their married children or parents, with a respective $10,000 and $20,000 grant. Since its implementation on 24 August, 684 families and 53 singles have applied for the grant. Income ceilings have also been raised to $12,000 (from $10,000) for families and $6,000 (from $5,000) for singles. This means more would qualify for a HDB flat and the respective grants, possibly allowing some applicants who may have previously fallen just short of the income ceiling to now successfully apply for a unit.

Indirectly, this move may have also helped to boost resale transactions. As applicants who wish to live near their parents or married children may not be able to find a new flat within close proximity, especially in more mature estates where new flats are rare, resale flats may be their next best choice. With a combination of the Proximity Housing Grant and other CPF housing grants, what they may finally have to pay for a resale flat may be much more palatable.

Resale HDB flat prices hold steady

At this point of the property market cycle, prices holding steady could be a positive sign, indicating effectiveness on part of the cooling measures which did not crash the market but rather, merely realigned the prices gently. The change evolved over a long period of time, which is more palatable for sellers and the lowering prices may have also increased sales volume by enticing buyers.

BidadariPhoto credit: HDB

A 0.3 per cent fall in HDB resale flat prices indicate a slowly stabilising market. Although prices have been falling for 9 quarters straight, the last quarter showed the lowest rate of decline. In 2014, overall resale HDB flat prices fell 6 per cent. Industry analysts are expecting a smaller dip this year of 2 to 2.5 per cent. Some buyers may have been holding back on buying in the open resale market, in wait of November’s major launch of new Build-to-order (BTO) flats which includes prime units in Bidadari and Punggol Northshore.

Suburban resale private property prices are falling at a steeper rate of 1.3 per cent and if the prices fall even further and at a quicker rate than HDB resale flat prices, the gap between the 2 market segments will narrow. This could then draw a substantial pool of buyers from the resale flat market into the private property market, which could then give sales volume a boost and slow down the price decline in the private property sector.

Sims Urban Oasis

Photo: Sims Urban Oasis

Property developers are keeping a close eye on whether cooling measures will be adjusted, and pricing their units accordingly. We could also expect a more staggered schedule of new launches as developers become more careful about not cannibalising on one another’s market share. More so than before, it may be a matter of timing and opportunity.

More BTO flats expected in 2016

2015 might have been the year the government slowed down the release of new BTO (Build-to-order) HDB flats to 15,000 as demand was deemed to have been fulfilled by the massive roll-out in the previous years; but 2016 might see a reversal as new National Development Minister Lawrence Wong announced last week that HDB will be building more new flats next year.

Clementi Crest HDB flat
Photo credit: HDB

Though the number of new flats will not be as massive in comparison to the 2011 to 2013 period when more than 22,000 flats were rolled out per year, the figure of just under 20,000 will still be considerable. This is largely to fulfil the increase demand that is expected to come with the recent policy changes. The income ceiling for BTO flat applicants have been increased from $10,000 to $12,000, which may mean that more families now qualify for a BTO flat. Add the new $20,000 Proximity Housing Grant which encourages families with parents or married children to live near to one another, and the numbers might increase significantly as well.

As the resale HDB flat market has only just stabilised after a year or so of declining prices, will this increase in HDB flat supply dampen the mood in the resale market? Probably not in the near future as demand for resale flats are still mostly in the mature estates, and most new flat owners are still serving out their 5-year MOP (minimum occupation period).

There will be a major sales launch of new BTO flats in November and the response to this will be used to temper the projection for next year.