Are HDB resale prices headed for a correction?

In light of the new rules announced on Tuesday by the Housing and Development Board, some market watchers are once again suggesting that it would not be long before HDB resale prices start to correct, beginning with the larger flats.

Permanent residents will now have to wait three years after receiving their PR status to buy a resale HDB flat, softening demand from this group of buyers, who presently account for about a fifth of all resale transactions.

The HDB also shortened its maximum loan tenure to 25 years from 30 years and cut the mortgage servicing ratio cap to 30 per cent from 35 per cent of the borrower’s gross monthly salary. The tighter loan tenure and quantum would shift demand from larger to smaller flats.

Even before the announcement of the latest measures, data from the Singapore Real Estate Exchange (SRX) showed that more people were selling their flats in the resale market without a cash-over-valuation premium while the overall median COV dipped to a low of S$20,000 in July, the lowest since 2011.

Zero-COV transactions made up 1 per cent of all HDB resale transactions in January, rising to 3.9 per cent in July and 5.7 per cent so far this month. There have been 32 zero-COV transactions recorded by SRX in this month so far.

The market predictions of a price correction are not new. They have been bandied about as far back as 2010, when private property owners were barred from investing in HDB resale flats.

Resale transaction volumes have already been on a downward trend. This is the result of smaller numbers of flats built in the past decade, which means fewer flats are eligible for resale each year. The supply of resale HDB flats is further aggravated by earlier rounds of cooling measures that encourage upgraders to hold on to their homes.

With few investment alternatives in the market, it made a lot of sense for upgraders to do their utmost best to hold on to their HDB flats.

If the supply is shrinking fast but demand remains more or less the same, resale prices will face a lot of upward pressure. So the measures to reduce PR demand to stabilise prices is sensible.

As for the increasing number of zero-COV transactions, one wonders who in his right mind would sell his flat without a premium, given that the HDB rental market remains fairly decent, if not outright bullish.

But it is not so puzzling when you realise that the recent spike in zero-COV numbers coincided with the talk of tapering moves in the United States, which has weighed on financial markets since late May. It is likely that some HDB flat investors are getting cold feet and are taking the opportunity to cash out before the housing market starts to decline. It is far quicker to sell a flat with zero-COV: And it is not always at lower prices — some are higher.

It is what is happening in the America that is really affecting investor sentiment here. Where the market is dominated by genuine buyers such as those applying for Executive Condominiums, sales numbers have remained healthy. And genuine buyers will keep HDB resale demand healthy — the problem is that there are just not enough flats for sale.

As for prices rising more gradually, this is also due to more “poorer” units on the market as the good ones are being held on to by owners.

And as for the PRs who cannot wait for three years moving to the mass suburban private market, the fact that they have been looking at resale HDB flats in the first place suggests that cost is a key factor in their home search.

The gaps in prices and sizes between private apartments and HDB flats are still substantial. Private apartments cost a lot more but are smaller in size. I feel these PRs are more likely to wait out the moratorium than rush to buy a smaller private home; if they could afford private apartments, I suspect they would have bought them long ago.

Finally, if prices of housing — both HDB and private were to correct — it will not be because of policy measures. It has been stressed by the authorities time and again that the cooling measures are crafted to stabilise the market, not correct prices. A price correction — if it comes — will most likely come from an external event.

By Colin Tan – Head of Research and Consultancy at Suntec Real Estate

Source : Today – 30 Aug 2013

Join The Discussion

Compare listings