HDB resale prices may dip before stabilising

14 PROPERTY 2014
The Business Times, Thursday, September 18, 2014
HDB resale prices may dip
before stabilising
Govt measures and more realistic sellers seen to temper the market. By EUGENE LIM and URAINA POH
HOUSING and Development Board (HDB) resale prices
continued to soften in the second quarter of this year, due
to a combination of cooling measures and a steady supply
of new flats. HDB’s second quarter Resale Price Index
(RPI) continued to fall to 195.7, down 1.4 per cent from
198.5 in the previous quarter. This is smaller than the 1.6
per cent fall in Q1 2014, and is the fourth consecutive
drop. (Figure 1)
The decline was due to a combination of factors that
have led to a slowdown in the number of resale HDB transactions. They are:
◆ The lowering of Mortgage Servicing Ratio (MSR) cap to
30 per cent from 35 per cent and the maximum loan term
for HDB mortgage loans to 25 years from 30 years. These
essentially reduce the loan quantum that a would-be HDB
flat buyer is able to obtain and hence, his ability to buy
higher priced flats or larger flats that come with a larger
price quantum.
◆ The large number of new Build-To-Order (BTO) flats
and flats sold by HDB via the Sale of Balance Flats (SBF)
programme has offered a good number and variety of
choices for first and second-time buyers. This has reduced demand significantly for resale HDB flats.
◆ The three-year waiting period before newly minted Singapore Permanent Residents can buy resale HDB flats has
also reduced demand.
◆ Singapore PRs purchasing their first residential property (including HDB resale flats) are required to pay the additional buyer’s stamp duty (ABSD) of 5 per cent. Singapore
PRs owning HDB flats are not allowed to sublet their
whole flat. Those who own HDB flats must sell their flat
after purchasing private residential property in Singapore.
◆ By allowing singles to buy 2-room Build-To-Order
(BTO) flats in non-mature estates since last July’s BTO exercise, resale demand from this group is further reduced;
especially for 3- and 4-room flats. With singles and second-timers finding it easier to apply for BTO flats, demand
for resale flats has fallen.
HDB resale transactions fell to just 18,100 last year
from 25,094 in 2012 – the lowest since 1997. The volumes
have remained low this year even though they increased
by 16.1 per cent from 3,781 units in Q1 2014 to 4,389
units in Q2 2014. While more buyers may have just started to come back to the resale market due to stabilising
prices, the low resale volume has persisted primarily due
to the same reasons mentioned.
In addition, HDB has ramped up supply with 25,139
new flats launched last year, and plans to release 22,400
more this year. The massive injection of new flats into the
market – in large quantities and across various locations
each time, is aimed at keeping public housing prices af-
Carpet
RESALE PRICE INDEX
210
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0 Q1
205
200
195
190
185
Q2
Q3 Q4
Q1 Q2
2013
Q3 Q4
180
Q1 Q2
2014
Figure 2
Resale volume slowing down
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
‘04 ‘05 ‘06
‘07 ‘08 ‘09
‘10
‘11 ‘12 ‘13 1H ‘14
Source: HDB, ERA Research
Figure 3
Nearly 100,000 new flats in 4 yrs
BTO supply
30,000
25,000
Muted interest: While more buyers may have just started to come back to the HDB resale market due to
stabilising prices, the low resale volume has persisted. FILE PHOTO
20,000
fordable for those who are looking to purchase their first
home from the HDB. With a higher success rate of attaining their homes via the HDB BTO programme, more homebuyers, both first and second-timers, have turned away
from the resale market.
10,000
Dealing with COV
One other major policy change that has stymied buoyancy
in the HDB resale market is the overhaul of the HDB resale process in March to rid buyers and sellers of the need
to negotiate for cash-over-valuation (COV). As prices started to fall and more resale transactions were closing at below market valuation due to tighter loan curbs and reduced resale demand, the HDB took the opportunity to
overhaul the resale procedure.
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Previously, sellers of resale HDB flats would first obtain the valuation report to use as a base to price in a premium. Much of the negotiation between sellers and buyers centred on the COV; and this resulted in an upward spiral of prices over time.
Under the new resale process, sellers and buyers will
now negotiate the resale price using market data that the
HDB updates on a daily basis. The sellers have to grant
the Option-To-Purchase (OTP) before the buyer can apply
for the official valuation to facilitate his loan application.
With almost six months into this change, we can see
sellers and buyers getting used to negotiate on price and
not COV any more. With resale prices stabilising, we can
expect more buyers previously put off by the high COV
prices to return to the resale market.
Inflexion point
Resale HDB flat prices have reached an inflexion point,
having risen 14.1 per cent in 2010, 10.7 per cent in 2011,
and 6.6 per cent in 2012. Last year, prices fell by 0.6 per
cent while in H1 2014, prices have further moderated by
3 per cent. This price moderation is expected to continue
in view of the supply and demand side measures that continue to bite the market.
Over 2014, we are expecting resale prices to moderate
between 5 and 8 per cent. This moderation may continue
into 2015 and perhaps even 2016. By then, resale HDB
prices may have fallen by some 15-20 per cent over three
years.
With first-timer demand being satisfied, we may see
the HDB scaling down its BTO programme by 2015 or
2016. Progressively, the Singapore PRs who are in the
three-year waiting period since H2 2013 will enter the resale HDB market in H2 2016. As such, the declining resale
HDB prices we are seeing now may cease when the market stabilises in 2016.
The fall in the prices of HDB flats runs counter to the
sustained growth in HDB dwellings last year by 2.4 per
cent to 961,800 units and a minor rise in ownership of
HDB homes from 91.7 per cent to 91.8 per cent.
However, short-term fluctuations in HDB prices should
not worry HDB owners as they usually hold it for the long
term, though there is some unhappiness that the current
price declines are not due to economic factors but triggered by government measures and policies. After all,
HDB flat values can affect the vast majority as 82 per cent
of Singapore residents live in HDB flats.
Fortunately, the majority of households have paid off
their mortgages and are sitting on paper gains from the
uptrend since 2006. Between 2006 and 2013, resale HDB
prices have surged some 95 per cent.
However, we are expecting a further softening of resale HDB prices as new flats continue to be released under
HDB’s BTO and Sale of Balance Flats schemes. Buyers of
newly completed BTO flats and executive condominiums
also have to let go of their HDB units.
Flat sellers are now able to negotiate with buyers for a
temporary extension of stay in their flats by up to three
months. This will increase their convenience and give
them more time to move out of their sold flats. By making
the transition more convenient, the change could help
boost HDB resale volumes.
Sell, buy or hold?
The current slew of measures is not designed to crash the
market but rather to stabilise resale prices that had risen
too fast for too long. Over the longer term, the growth in
population towards 2030 is expected to increase the demand for housing and would therefore provide the headroom for a measured capital appreciation.
If your current flat serves your housing needs well,
then there is no need to be pressurised to sell for fear that
prices are dropping. If you are looking to buy a flat today,
the time is never better. Sellers are now more realistic
and you would probably be able to get a good deal with
some market research. With the loan curbs here to stay, it
would be a good idea to get the necessary financing approvals before going house-hunting.
Selling your flat in the current market? Realistic pricing is the way to go. Buyers are very price-sensitive and if
you go to market with a high asking price, no buyer would
be interested to make an offer for your flat. This will increase the length of time your unit stays on the market
and this would probably work against you in the end. Remember, based on today’s resale prices, nobody is really
making a loss by selling at market value.
Monetisation options for seniors
30 Tuas Bay Drive Singapore 637548
HDB resale volume & resale price index
VOLUME
Source: HDB, ERA Research
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Figure 1
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In general, seniors can monetise their flats in four ways:
◆ Silver Housing Bonus: Downsize and receive a
S$20,000 cash bonus by using some of their net sale proceeds to top up their CPF Retirement Account (RA) and
join CPF LIFE.
27,084
25,200
25,139
22,400
15,000
5,000
0
2011
2012
2013
2014 (est)
Source: HDB, ERA Research
Figure 4
Singles application rate
for 2-room BTO flats
BTO
LAUNCH
DATE
TOWN
SINGLES
APPLICATION
RATE
SINGLES TOTAL
APPLICATION
RATE
Jan 2014
Punggol
Woodlands
41.2
17.1
29.2
March 2014
Sembawang
Yishun
10.8
33.0
19.4
May 2014
Bukit Batok
Woodlands
13.8
18.8
16.0
July 2014
Punggol
Sembawang
Yishun
22.1
8.9
33.3
18.7
Source: HDB, ERA Research
◆ Lease Buyback Scheme: Sell part of the lease back to
the Housing Board if they own a four-room flat or smaller.
◆ Sublet their flat.
◆ Sell it on the resale market.
Senior citizens who have sold their old flats and moved
into smaller flats can gain net sales proceeds, after outstanding loans on their old flats are paid off, and after the
new flats are fully paid for, especially after buying a studio
apartment.
If they choose to stay put in their old flats, they can rent
out the available rooms. Whether they receive sale proceeds or earn rental income, these monies can be valuable
for their retirement needs.
At the National Day Rally this year, Prime Minister Lee
Hsien Loong announced that owners of four-room Housing Board flats are now eligible for the enhanced Lease
Buyback Scheme (LBS), which allows elderly homeowners to sell part of their lease back to the government to enhance their retirement income. Previously, only owners of
three-room and smaller flats were eligible.
Elderly home owners can use the sales proceeds from
selling part of their flat’s 99-year lease back to HDB to top
up their Central Provident Fund (CPF) Retirement Accounts. This will allow them to obtain bigger monthly payouts under the CPF LIFE annuity scheme. The excess
sales proceeds after topping up to the age-adjusted Minimum Sum are received as a lump sum in cash.
With the new enhancements that will kick in from
April next year, elderly homeowners can choose the
length of the lease to retain depending on their age and
preferences. Joint owners of a flat only need to top up to
half the age-adjusted Minimum Sum, and can hence receive more sales proceeds in cash than before.
Four-room flats account for the majority of flats in Singapore. So, with the inclusion of the four-room flat owners, the majority of HDB flat owners will now have this additional monetisation option to tap into should they need
it.
Those who are reluctant to uproot from their current
location as they have been staying there for many years
and have no immediate need of a sizeable capital sum can
consider this option. Those who are in need of a sizeable
capital sum are likely to consider the right-sizing option,
that is, sell off their current flat and buy a studio apartment.
Price pressures
Over the last four years, the government has introduced
some 100,000 new flats into the system. Together with
the current slew of cooling measures, demand is expected
to fall and HDB prices will dip before stabilising.
Going forward, sellers are likely to become more realistic and willing to negotiate. The demand-side measures
have effectively reduced the demand for resale HDB flats
and will continue to put a lid on resale flat prices and
transaction volumes in 2014 and beyond.
For the whole year, we are likely to see an overall price
decline of 5-8 per cent. Prices may continue to decline for
2015 and 2016 before stabilising. (Figures 2, 3 and 4)
Eugene Lim is ERA Realty key executive officer and
Uraina Poh is ERA senior research analyst.
The Business Times, Thursday, September 18, 2014
15