Smaller apartments gaining popularity once again

Just a couple of years ago, there were debates about whether homes were becoming too small for comfort as the 500 sq ft studio apartments or shoebox units took the market by storm. Some shunned small units, preferring instead to go for larger ones with a lower psf price.

But now as loan limits are truly showing their might, buyers are favoring smaller apartments once again due to their lower quantum prices and the ease of rental. Though not all are flocking to shoebox units, after all, young families do need a reasonable amount of space, the average home size has dropped to 947 sq ft from June last year. And for HDB upgraders, their chances to move onto the private property market might have become slimmer, especially if size is a major consideration. The average 4-room HDB flat is around 969 sq ft.

CIty GateOne- and two-bedders have increasingly become more popular with buyers as they are usually within their budget and investors find them easier to rent out. URA figures in fact also showed that new residential properties have also featured smaller units, with the average size being 753 sq ft. But this hardly comes as a surprise as home size has been shrinking since 2009.

The other popular property  type is the dual-key apartment which provides the atmosphere of having two separate living spaces within the same home. Some of these units share the same entrance but separate facilities such as kitchens and toilets, while others share the same facilities but have separate entrances, providing privacy for bigger families and offering more rental options.

As we progress into the second half of the year and the market evolves in reaction to buyers demand and supply of land, will developers be quick to re-strategize and cater to the majority?

Resale HDB flats prices dip

The number of resale HDB flat buyers is diminishing. At its two-year low last month, the number of flats which exchanged hands in May was 1, 320. In April, 1, 484 resale flats were sold. Prices also fell 1.2 per cent in May, the lowest since April 2012 according to the Singapore Real Estate Exchange’s (SRX) price index.

Marsiling Greenview BTO HDB FlatThe most common reason for the drop was the loan curbs. This has prevented many buyers from securing a desired loan amount, thus unless they have a large enough cash reserve, it usually puts a resale flat out of sight. The number of transactions in March and April were more positive but that could be due to the pent out demand following the festive season in January and February. Other possible reasons for May’s drop could be the release of new BTO and SBF (sale of balance) flats by HDB in the same month. The latter SBF flats are usually more popular with location- and price-conscious buyers as they are cheaper than resale flats but yet are situated in mature estates.

But what about HDB upgraders who are have purchased private properties? Unlike private property owners who are not allowed to purchase HDB flats, HDB flat owners are allowed to purchase private properties. But as buyers play the waiting game, resale flat owners are now simply willing to wait, if they can, or rent out their HDB flats. This in turn keeps rental supply high, but that also means they will be likely to compete with private property rentals. As the supply of tenants are kept stable, this could also mean there will be a price-war in the rental market.

How long will the resale market remain weak? Will it be a tough uphill climb?

HDB resale flat sales flat

Prices and sales of HDB resale flats have not gone down that drastically, though COV prices are now almost non-existent, but they have remained flat for the last quarter.

April marks a slight rise in the number of resale flats sold, 4.4 per cent up from March. This could be a sign buyers are coming back to the market after having observed the market for almost 3 quarters now and having held out in wait of market stability. As the frequency of BTO flats  launches slow down, buyers who are still in search of a flat which suits their needs, may it be price, location or size, could be more willing to purchase on the resale market now.

Resale 5-room HDB flat on King George's Avenue with asking price of more than $700,000.

How will the HDB market perform in the upcoming months? Analysts and experts are expecting prices to fall very slightly before stablising in the third quarter of this year. Overall, prices for most HDB flats fell, with the exception of executive flats of course. A 1.2 per cent rise was recorded for that sector.

With rents also coming down, mainly due to the decreasing demand as the foreign workforce diminishes, buyers of HDB flats are also more likely to think of their purchase as a long-term home occupation investment rather than to count on profiting from rentals.

The second half of 2014 and the first quarter of 2015 would be an interesting time for the HDB resale flat market, a time to find their footing and possibly find ways to turn itself around.

Resale HDB flats shrink in number

You may think that with the number of new properties being completed within these couple of years, more HDB upgraders will be in a hurry to sell. But as the figures show, fewer resale HDB flats are put out there in the market as many choose instead to hold on to their flats in wait of the market upturn.

The quicker rise in prices of private mass-market homes could also be part of the reason for this inertia to upgrade. Prices of condominiums have risen 4.8 per cent and coupled with the decreasing ability to receive and maintain a realistic home loan, many may have given up their plans to upgrade, at least temporarily.

Bukit Batok HDB FlatBut it is just as well, since demand for HDB resale flats has also fallen, especially since singles are now able to purchase new flats directly from HDB and permanent residents now have a 3-year waiting period after receiving their PR status before being allowed to purchase a HDB flat.

The first sign of the decline in demand was shown in the COV figures. From a 6-figure sum just not long ago, it is now at a zero median in February this year. Some have even been reported to have sold below valuation price.

It is uncertain how long this lacklustre situation will last, but at least for this year, the market seems relatively quiet.

Evaluation of the HDB Resale Valuation

Recent changes in the valuation process for resale HDB flats have drawn some feedback from the public. Many are wary of how this mix-up will cause some hiccups in the buy-sell procedure and how it may also affect the selling prices.

Photo by HDB.

Photo by HDB. How does the recent change in the HDB resale process affect the seller and buyer?

Sellers will no longer be the ones to apply for valuation of their flats. They now need to come to an agreement on a selling price with the buyer before the buyer applies for the valuation. This may favour the buyer more than the seller as COV prices have been the main bugbear in the search and purchase of a suitable resale HDB unit, but without prior knowledge of the price of a unit based on the age, location and size of the unit, buyers may also be very much left to glean information from rumours in the wind or self-research.

HDB has however tried to bring some equilibrium to this confusion by publishing resale transaction figures daily instead of fortnightly.

What HDB hopes to achieve with this procedure renewal is:

  • Long-term stability of public housing prices
  • Less dependency of sales on COV (cash-over-valuation) prices
  • Making the HDB resale market more transparent

Will this move help them achieve all that? Or will market forces turn this around on its head and steer it in the other direction?

How much is that DBSS resale flat in the window?

$700,000. This is how much one of the first DBSS units to enter the resale market recently cost.

And this could very well set the trend for all the following DBSS resale units which enter the market. The Design, Build and Sell Scheme (DBSS) has been discontinued since 2011 when the public questioned the prices at which developers were selling the public housing units at. Centrale 8 at Tampines went for $880,000 in 2011, though developers lowered it to t$778, 000 thereafter.

The Premiere at Tampines

The Premiere at Tampines

But since units at the 2006-launched The Premiere at Tampines have gone on the resale market since most of its occupants have passed the 5-year minimum occupation period (MOP), all eyes are on how much these originally premium units will go for considering the current market situation.

Although lower than the highest asking price of $800,000 for units in Tampines, the average selling price is still about double of its original. A 5-room flat at The Preimiere @ Tampines originally cost $308,000 to $450,000. Recent sales figures showed a 2 units going for $699, 888 and $671,000. Comparing its age and size with other HDB flats nearby, they are considerably pricier. Most of the other HDB flats in this mature estate may however be larger, almost 109 sq m larger, but with less than 70 years left on the lease.

Centrale 8 in Tampines under the DBSS scheme. Image by Sim Lian Group Limited.

Centrale 8 in Tampines under the DBSS scheme. Image by Sim Lian Group Limited.

Should these young HDB flats cost more than its counterparts and will buyers buy into its premium private developer fittings qualifying for its higher prices even as resale units?

Change is in the wind for resale HDB market

And buyers too. More for buyers perhaps, as new rules regarding the cash-over-valuation (COV) for HDB resale flats kicked in at 5pm yesterday:

  • Sellers will no longer be the ones getting a valuation of their flats from HDB. Buyers instead are responsible for that part of the procedure.
  • HDB flat valuations can only be secured after the seller and buyer have agreed on a price. Previously, the seller could obtain a flat valuation prior to seller and then offer the valued price to the buyer, and on top of that demand a COV price.
  • The Option-to-purchase (OTP) period will now be 21 days instead of the previous 14.
Photo by ThinkStock.

Photo by ThinkStock.

Most of these new rulings were to help buyers obtain a home loan, especially since the loan limits have decreased. According to the National Development Minister, Mr Khaw Boon Wan, this move will also help “restore the original intention of valuation, which is to help buyers get a housing loan”.

The government is keen to make the HDB resale market less dependent on COV prices. Recent HDB sales have seen the COV prices drop to almost zero in many cases and some even selling below valuation. Just last year, median COV prices have sky-rocketed to $38,000 with some even garnering six-figures.

HDB will also now be publishing HDB transaction figures on a daily basis instead of fortnightly. These recent moves may be the push towards transparency the public housing market needs.

New HDB Rental quotas

The noose around the HDB market tightens a little more this year as further restrictions are put on it, this time around the rental sector. It will not be as easy to rent out your HDB flat anymore this year, especially if your potential tenant is a non-Singaporean citizen.

Every block of HDB flat can only have 11 per cent of its unit rented out, and only 8 per cent per HDB neighbourhood. The government says that the quotas are put in place to prevent the build-up of “foreigner enclaves” in HDB estates. Malaysians are the only exception to the rule as their close links to Singapore makes for easier and better integration into the Singaporean culture.

Woodlands HDBBefore panic sets in, this quota only applies to those renting out the entire flat. Those who are subletting only rooms are still subjected to existing rules. Thus far, only 1 per cent of HDB estates have reached the quotas, and the new regulation will not affect existing tenants until their rent period expires. Towns where quotas have been reached are Clementi, Jurong West, Queenstown and Sengkang.

Sales and rental prices may be affected in high-commercial-density areas such as Changi, Buona Vista and Woodlands. How will this affect the buyers and sellers in the resale HDB market? Will this mean an even deeper diminishing pocket of sellers and will it affect those who are depending on a rental income to keep a roof over their heads? Will this sieve out those who have been counting on making some profit through rental?