Housing and Development Board (HDB) resale flats have been in the spotlight recently.
From the issue of lease expiry to new schemes announced during Prime Minister Lee Hsien Loong's National Day Rally speech and million dollar transactions for HDB properties, discussions have been aplenty.
And while there were a healthy volume of resale flat sale transactions in the last quarter, transaction prices in the HDB resale market have remained stagnant.
We take a look at what 2019 might have in store for the HDB resale market.
THE CURRENT SITUATION
As we mentioned, the volume of resale flat transactions has increased. According to URA numbers, 7,063 HDB resale units were sold in third quarter of this year. That is an increase of about 21 per cent year-on-year, creating one of the highest peaks in HDB resale transaction volume since 2010.
Regardless, resale flat prices are mostly flat. Overall resale prices slipped 0.1 per cent, undoing a 0.1 per cent gain in the second quarter.
Moving forward in 2019, we are likely to see more of the same, unless Brexit and China-US trade tensions end up wrecking the market. We are on the verge of seeing the outcomes of these events.
Here are four things we’re likely to see for HDB resale market in 2019:
1. NEW PROPERTY CURBS COULD BOLSTER THE HDB RESALE MARKET
HDB resale flats have started to look more affordable, at least relatively, thanks to the last round of cooling measures.
Even first-time buyers of private property now have a maximum loan-to-value (LTV) ratio of 75 per cent, down from 80 per cent previously. For a mass market condo in the S$1 million range, this translates to roughly another S$50,000 needed in cash or CPF.
That said, buyers of HDB resale flats can still turn to HDB Concessionary Loans, subject to eligibility conditions. HDB loans can finance up to 90 per cent of the flat price, with the remaining 10 per cent coming from cash or CPF.
This makes a huge difference for new couples, who typically have a lot of costs to plan for (for example, first child, first car, wedding debts). The lower cash outlay from an HDB loan may be justification enough for them to seek out an HDB resale flat for a first home instead of a condo, especially if they exceed the income ceiling to qualify for a Build-to-Order (BTO) flat, or are tired of balloting unsuccessfully for one.
In fact, the group of sandwiched Singaporeans who bust the income ceiling for a new flat, but are not wealthy enough to manage private property prices, is in significant numbers. They are simply unable to stomach the added 5 per cent downpayment to buy a condo.
We expect the lower cash outlay needed for resale flats will continue to be attractive to first time buyers, sandwiched buyers, and some upgraders, and this will keep demand for HDB resale flats from falling below sustainable levels. This could just be enough to prevent further downward price pressures for the HDB resale market.
2. NOT THE SAME ENTHUSIASM FOR OLDER RESALE UNITS
While many of us assume that older flats in mature areas have always been valued higher, this isn’t true.
The trend of paying more for older flats really began in 2002; that was when public awareness of the benefits of certain HDB schemes, such as the Selective En-Bloc Redevelopment Scheme (SERS, originally announced as far back as 1995) really started to kick in.
From there on it started to climb, and by the time of the last property peak in 2013, Cash Over Valuation (COV) in excess of S$30,000 would not have raised a single eyebrow.
We’re raising this reminder for two reasons:
First, remember it is not an inherent or fundamental fact that older flats are always worth more. Sentiment is a big part of it, and that can change. Our valuing – and sometimes overvaluing – of old flats is something that began less than two decades ago, and one of the main causes was SERS.
We don’t dispute that key attractions of older flats are size and amenities – but there also used to be the lingering belief that, if the lease ran out, SERS would kick in and rescue the situation.
With the announcement of VERS, and the fact that only around 5 per cent of estates today qualify for SERS, that belief that is now quashed. Instead it is replaced by fears of what will happen when the 99-year lease runs out, along with debates about whether you truly “own” your HDB flat.
We don’t have many details on VERS yet, but we know for a fact that it will not be as generous as SERS, and that it will be voluntary, which means it may not even go through if your neighbours vote against it.
All in, there is now much greater awareness, of what could happen when your flat gets too old. The shorter remaining leases on resale flats will now weigh more on buyers’ thinking, and it could put a dent in the demand for older units and even force prices down.
That said, ageing flats in close proximity to key amenities, such as MRT stations and good schools, may still see a healthy demand as the owners can realistically utilise the units for a decent average rental income after the five-year Minimum Occupation Period (MOP) given they can afford a second property.
3. ONLY ONE EC LAUNCH IN 2019, WHICH COULD HELP SUSTAIN HDB RESALE DEMAND
Coming back to sandwich-class Singaporeans, many of them tend to choose between Executive Condominiums (ECs), and big resale units.
For 2019, there is only one EC launch, at the Sumang Walk area in Punggol. We won’t rehash the quibbles and controversy over this development, except to point out a number of people have complained it is too expensive. We are talking a million dollars for a three-bedroom unit, in Punggol.
That’s not to say it’s bad of course, it is waterfront living (next to the Punggol Waterway). The Punggol Digital District could also raise value of properties in the estate once it’s developed; but we foresee some buyers being hesitant to pay this amount, or are more inclined to wait for the 2020 launch of an EC at Tampines Ave 10.
Of course, compounding the issue is the tighter LTV and rising interest rates for bank loans (there are no HDB loans for ECs).
So, the lack of value ECs, combined with the lack of EC units in general, could leave some of our sandwiched Singaporeans — or even those displaced persons from the 2017 en-bloc fever — to choose bigger HDB resale units as an housing option.
4. HDB COULD FURTHER REDUCE THE NUMBER OF BTO FLATS RELEASED IN 2019
Earlier in 2018, HDB already announced that it was to launch 1,000 fewer BTO units than was originally planned for the rest of this year, citing “stabilising HDB resale prices”.
Moreover, we are probably going to see a lot more launches for BTO projects in 2019 in non-mature estates (read: Tengah). Due to less than favourable locations plus lower odds of successfully balloting for a BTO flat with fewer units released, many BTO hopefuls are likely to “give up” and settle for a HDB resale flat, which isn’t a bad thing given they’d have many more choices on where to live.
So, directly and indirectly, the Government is giving the HDB resale market booster shots. This will continue in 2019, which could even have the effect of nudging the HDB resale price index up a little.
This article first appeared on 99.co.