What a difference a month makes

Compared to about a month ago, the mood in the public housing market today could not have been any more different. The gloom and anxieties of first-time applicants for new Housing and Development Board (HDB) flats have now been considerably dispelled.

Two combined launches offering about 4,000 and 3,500 flats in May and mid-July, respectively, in various HDB new town locations have significantly raised the success rate and reduced the number of repeated disappointments. The queue numbers are also not so ridiculously high as to cause one to lose hope about getting a flat, which was often the case before May this year.

The overall oversubscription rate has dropped from about 3.5 times in May to slightly above 3.2 times for the recent launch – not a big improvement, one would say, but nevertheless a significant one.

Besides a higher chance of selecting a flat and a lower overall rejection rate, the advantage of a larger launch in as many varied locations as possible is that the authorities have a more accurate gauge of the extent of the housing shortage.

By having many scattered launches throughout the island, the chances of some households not putting an application simply because of location are very much reduced.

So, the vast majority of those in need of a flat would be among the applicants. This gives us a snapshot of total demand for new flats at that point in time and how many more flats need to be launched to solve the shortage problem.

I feel the improvement in the over-subscription rate would have been much better if not for the fact that many of those looking to buy resale flats are now opting to buy flats directly from the HDB.

However, the most important development to come from the recent combined launch is the confirmation that prices of new flats have stabilised.

It may not have been that obvious in the May launch but continued rises in resale flat prices have widened the gap sufficiently for this to be noticed. Initially, it caused somewhat of a market stir when some analysts interpreted it as a drop in prices.

HDB resale flat prices have climbed a further 2.9 per cent in the second quarter, according to official estimates – on the back of a 1.6-per-cent increase in the first quarter and a 14.1-per-cent rise last year.

Although there has not been any official announcement of a change in the method of pricing new HDB flats – we can only assume that they are still pegged to resale prices – greater weightage appears to have been given to the long-term affordability of applicants.

This apparent change in weightage means we can expect a lot more stability in prices or even lower prices if household incomes shrink due to an economic downturn. This fact alone should bring calm to the market and reduce advanced or panic buys.

A side effect of the larger combined launches and the stability of new flat prices is that resale transaction volumes have experienced another sharp decline. The first resulted from an earlier set of cooling measures to reduce investment demand for such flats.

Although resale flat prices are expected to continue to rise simply because of a supply crunch, transaction volumes will continue to drop at least for the next few months. Resale numbers released earlier for the month of May showed that about a quarter of buyers are private property downgraders and Permanent Residents, who have no choice as they are ineligible for new HDB flats.

However, this leaves the other three-quarters who could opt to buy new flats. If resale prices continue to rise while new flat prices remain stable, more will choose to buy directly from the HDB.

An unhappy consequence of this is that housing agents focusing on HDB resale flats are finding it a lot tougher to close a deal these days. The fact that they will get more commission from closing a deal as a result of higher prices is no comfort, especially to those who have yet to close one for many months now. I am told one agent has gone four months without a deal. At this rate, I estimate at least a quarter of existing agents will have to work in other property segments or find alternative jobs.

By Colin Tan – head of research and consultancy at Chesterton Suntec International.

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