Strong response to BTO flats for singles: Occupier or investment demand?

The much-awaited launch of the Build-To-Order (BTO) two-room Housing and Development Board (HDB) flats for singles saw about 58 applicants vying for each available unit by the close of offer last Monday.

In his blog, National Development Minister Khaw Boon Wan said this had silenced the sceptics as the market response was not lukewarm at all. A more apt description of the response would be “sizzling hot”, which leaves one wondering whether it is all genuine demand or if some of it comes with investment objectives in mind.

As it is, many singles have stayed away because they find the small sizes of 35 and 45 sq m — the public sector’s equivalent of the shoebox unit — too small for comfort. So the pent-up demand from singles could be even higher.

Only those aged 35 and above and earning S$5,000 a month or less qualify for the new scheme. The median age of the nearly 9,000 singles who applied was about 43, and their median monthly income about S$1,800.

It would be interesting to know the breakdown by gender because the main reason most singles want to live on their own is the freedom to do their own thing. When you are living in somebody else’s home, you have to follow the house rules.

Men generally have much more freedom than women from their parents, who tend to be more protective of daughters, and hence more restrictive. If I am right, most men are actually more comfortable living with their parents, who often will clean, cook and do the laundry for them. In that case, may a higher rate of application by male buyers suggest less genuine demand and greater investment demand?

But before going more into the investment angle, let us first assume all of the applicants represent genuine pent-up demand. How long would it take to clear this backlog?

Even if the HDB doubles or triples the supply for singles, it would take 20 to 29 BTO launches. If it were to launch a BTO every other month, it would take at least three-and-a-half years to clear the backlog.

Some analysts attribute the overwhelming response to the cheaper-than-expected pricing. From the viewpoint of singles, the flats are priced “very affordably” from S$76,000 to S$133,000, compared to resale three-room flats which can go for three to four times more.

The final figure can go even lower as some buyers are entitled to various housing grants, which can lower the price of such flats to about S$50,000. For singles who apply jointly, the net price is even lower, at about S$16,000.

But I do not think they are really cheaper or else we will have the normal applicants becoming agitated about the unfairness of it all. The pricing has to do with the small size and location compared with alternatives elsewhere.

Still, as some have suggested, the two-room flat may be viewed as a good long-term investment for eventual resale or rental. I am not too sure about its resale value if overall price levels come down in the future. Small flats are in high demand when prices are at their peak, but there will be few takers for such homes, especially from owner-occupier buyers when prices are down.

As for the rental market, the authorities have already said shoebox units in suburban areas are an untested market and they have introduced guidelines to prevent their proliferation — what more small public flats that are generally in poorer locations compared with their private counterparts.

But I have to admit that the low prices, especially in an environment of cheap financing, are very tempting. It is an easy and almost painless way to enter the property market, notwithstanding the five-year minimum occupation period.

Even if the singles themselves are not interested, they may be goaded into applying for the two-room flats by those around them. Because of greed, they may be even be persuaded to lend their names and monies, notwithstanding the illegality of such a move.

Has the HDB unwittingly provided an opportunity for property investment for those further down the economic ladder? But before we go up in arms, is this not what non-single households have been able to do all along? I am not advocating housing investment for lower-income singles, but the latest move does even out the playing field among citizens.

By Colin Tan – head of research and consultancy at Suntec Real Estate

Source : Today – 16 Aug 2013

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