Published 3 June 2011
By Colin Tan
It has not been a week since National Development Minister Khaw Boon Wan made his move to make housing and the Housing and Development Board (HDB) popular again but already some private property investors are feeling anxious.
Last Friday, Mr Khaw announced that the HDB would roll out 4,000 new flats -the largest supply ever in a single launch. Supply for this year would also be ramped up from 22,000 to 25,000 units with the new pace of building sustained for next year.
Two days later, Mr Khaw said Singapore would need to build “tens of thousands” of subsidised rental flats to meet the demand – the sooner, the better.
In another blog post a day later, he said home buyers can expect HDB to offer more new flats in mature estates from next year.
The big question is: What possible negative impact will these moves have on the HDB resale and the private housing market? In reality, over the short term, not much.
For one, all of the new ramped-up supply will not enter the HDB resale market for the next seven to nine years at least, assuming a construction period of two to three years and a minimum five-year occupation period. An oversupply problem can only happen then. Between now and then, anything can happen to make this discussion redundant.
In the immediate term, it will take buyers away from the HDB resale market. But building statistics show that the problem with the resale market presently is one of supply rather than demand. The fresh supply of resale flats in the current market is very thin, most probably at its historical low.
At the same time, the usual numbers upgrading to private housing are staying put because private prices are not affordable. And for reasons of their own, some private property owners are even downgrading to HDB resale flats.
Therefore, any easing in demand for resale flats actually helps alleviate the problem of a shortage of supply. Do not expect resale prices to drop.
As for a possible drop in rental demand, those who qualify for rental flats probably cannot afford market rates anyway and were never in the market in the first place. What is not there cannot be taken away.
More new flats in mature estates will draw away demand from newer estates. Flat prices in the newer estates need to be suitably lower or cheaper to compensate for location and fewer amenities. There will always be trade-offs.
There will be those who will opt for cheaper or bigger flats in newer estates. Alternatively, a longer minimum occupation period, say, 10 years instead of the current five, for flats in mature estates can discourage applicants who are mainly interested in the capital appreciation potential.
If HDB resale flat prices are kept stable while private housing prices continue to climb, this may affect the pool of upgraders. But really, how big is this group today?
Which group is driving the private housing buying today – investors or upgraders?
Have income levels of upgraders risen in line with or higher than private property prices for them to afford one? Are true upgraders really interested in buying one or two-bedders and shoebox units? The reason for the robust demand for Design, Build and Sell Scheme (DBSS) flats and Executive Condos – which surprised many – is because genuine owner-occupiers want them affordable as well as liveable.
If you agree that the bulk of buyers are investors, are they your conventional types? Normal investors would have reacted to the ramped-up supply and shied away from buying. Even investors themselves tell me that they are worried but continue to purchase anyway.
The market is liquidity-driven and will continue to be so. Nothing has changed – yet. For the private market, I expect Mr Khaw to be consistent and come up with moves to help people fulfil their aspirations. Interestingly, he has left HDB flat prices alone, for now at least. That speaks volumes and may indicate how he may tackle issues in the private housing sector.
Colin Tan is head, research & consultancy at Chesterton Suntec International.
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