HDB resale market set to cool

Published 3 March 2011
The Business Times
By Eugene Lim

Demand and supply-side measures are stabilising the market after four red-hot years.

IT HAS been some six months since the government announced measures designed to help first-time buyers as well as to keep the resale HDB market in check. These measures were:

  • Extension of the minimum occupation period for resale HDB flats to five years;
  • Private property owners who buy resale flats will have to sell their private homes within six months of buying the flat. Private homes include overseas properties;
  • Those with existing mortgages and who are applying for a bank loan to purchase resale flats are subject to a maximum loan quantum of 70 per cent. They are required to fork out a mandatory cash deposit of 10 per cent;
  • First-time households with monthly income of up to $10,000 can buy new Design Build and Sell Scheme (DBSS) flats; and
  • HDB will speed up the completion of flats from three years to 2 1/2 years.

    Complexity: While HDB's measures six months ago may have helped rein in runaway prices, they have also made property buying and selling more complicated for existing and future home owners

    Complexity: While HDB's measures six months ago may have helped rein in runaway prices, they have also made property buying and selling more complicated for existing and future home owners

    While these measures may have helped rein in runaway prices, they have also made property buying and selling more complicated for existing and future home owners. How have these measures impacted the resale HDB market? Did they have the desired effect of cooling the red-hot HDB market? What is the impact on first-time and second-time buyers?

    Are there signs of a cooling market?

    The HDB resale price index for Q4 2010 was at its highest point since 1990. Resale prices are now 26 per cent above the previous peak in Q4 1996 and are five times more than when the resale HDB market was liberalised in 1990.

    Last year was another bumper year as prices of HDB homes rose by another 14.1 per cent following an 8.2 per cent rise in 2009 when the economy was recovering from the financial crisis. The index posted gains of 14.5 per cent in 2008 and 17.5 per cent in 2007.

    However, there may be signs that the resale HDB market is cooling.

    Post-Aug 30 resale prices have only increased by 2.5 per cent across the board in the last three months of 2010.

    This was after increasing by some 10.9 per cent in the first nine months, or an average of 3.6 per cent per quarter.

    The median cash-over-valuation (COV) for resale HDB transactions has dipped from a high of $30,000 in Q2 and Q3 of last year, to $20,000 in January this year.

    After seeing six quarters of buoyant resale transaction volume of above 8,000 units per quarter since Q2 2009, resale transaction volume for Q4 last year slowed to just 6,454 units. This is 45 per cent less than Q3 2009’s 11,649 units and 21 per cent below Q3 2010’s 8,205 units.

    ERA, with a 42 per cent share of the resale HDB market, saw a dip in its resale volume of some 25 per cent in January this year, compared with the corresponding period last year.

    Outlook for 2011

    So will the resale HDB market continue to cool this year?

    Quite likely, yes.

    In January, the government unleashed another round of demand-side measures. For HDB flat buyers who are taking bank loans to finance the purchase of their flats, the maximum loan quantum is reduced to 60 per cent of the purchase price, should they still be servicing an existing mortgage.

    This means that buyers who do not qualify for a loan from HDB will have to fork out 40 per cent equity, comprising cash and monies from their Central Provident Fund (CPF) savings.

    That would mean equity of $200,000 if one is purchasing an HDB flat valued at $500,000. Those affected include permanent residents, private property owners, families with more than $8,000 household income per month; and those that have already taken two HDB concessionary rate loans in the past.

    With higher equity outlay, the ability of these buyers to pay high COVs will be limited. This essentially clips the wings of the group that has been blamed for driving up COVs in the past with their aggressive bids.

    As such, we may see median COVs dipping further to $10,000 to $15,000 in the coming months. When that happens, we may see resale prices moderating further before stabilising. Statistically, the HDB Resale Price Index may continue to reflect marginal price increases of sub-2 per cent in Q1 and then sub-1 per cent in Q2.

    Prices may continue to increase despite falling COVs. This is because valuation, which is based on past transactions, remains high. Also, property prices are unlikely to dip unless there is a recession.

    Along the way, increasingly more first-timers who had been previously priced out due to high COVs may return to the resale market as they do not want to wait the 21/2 to three years for the delivery of a new HDB flat, should they book one.

    Recent applications for HDB Build-To-Order (BTO) projects have been subscribed by about two times compared to about six times in the past. This seems to suggest that progressively more first-timers are returning to the resale market.

    Meanwhile, supply-side measures continue to dilute demand for resale HDB flats. The government is offering first-timers and families with up to $10,000 monthly income a wide selection of homes in different locations and price ranges.

    HDB had offered 17,700 new flats under its BTO scheme last year and plans to offer another 22,000 this year if there is demand.

    The BTO supply will be further supplemented by the oncoming supply of flats under the DBSS and the Executive Condominium (EC) Housing Scheme.

    From the land parcels sold in 2010, there will be about 3,000 DBSS flats and 4,000 EC units. So far, developers have launched four EC projects, namely, Esparina Residences in Sengkang, The Canopy in Yishun, Prive in Punggol and Austville Residences in Sengkang. Four more EC developments in Punggol, Pasir Ris, Bukit Panjang and Tampines will be launched for sale in the coming months by the private developers.

    From the land parcels scheduled for sale in 2011, there will be about 4,000 DBSS flats and 4,000 EC units. In the first half of 2011, HDB will release for tender four sale sites under the DBSS with a potential yield of about 2,700 flats. This constitutes about two thirds of the 4,000 DBSS flats to be expected via the sale of DBSS sites in 2011.

    As announced under the first half 2011 Government Land Sales (GLS) Programme, HDB will also release four sale sites for EC developments. Three sites yielding close to 1,900 EC units will be offered for tender under the Confirmed List while one site yielding about 400 EC units will be made available for application by interested developers under the Reserve List.

    The total yield of about 2,300 EC units constitutes more than half of the 4,000 units to be expected from the sale of the EC sites in 2011.

    Going forward, we expect the resale HDB market to further moderate in the coming months, with very marginal price increases and COVs stabilising at $10,000 to $15,000. And quite possibly, we may see an average resale transaction volume of 6,000 to 7,000 units per quarter.

    After a run of four buoyant years, the red-hot resale HDB market looks set to cool this year.

    The writer is key executive officer, ERA

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