The HDB market – a boon or a bane?
While Housing Development Board (HDB) flat sellers are laughing all the way to the bank this year, first time homeowners and singles trying to get a piece of the HDB resale market are fuming. These buyers are finding HDB resale flats far too expensive with many now deciding to defer their purchase or even marriage.
Data from the HDB shows that the Resale Price Index (RPI) has continued to climb ever higher, posting a record 145.2 points for the third quarter this year - a growth of 3.6 percent over the previous quarter.
Analysts say this is due to the increased demand, both from Singaporeans and permanent residents, and the lack of supply in the market, prompting the HDB to ramp up the supply of its Build to Order (BTO) flats from 8, 000 to 9, 000 units.
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| Artist's Impression of Punggol Ripples |
This is up some 14.9 percent from the second quarter.
Other young couples, like Luqman Hakim Abdul Khir and his wife, have decided to rent due to the high cash-over valuations (COVs).
Indeed, analysts note that COVs across flat types have continued increasing in the third quarter by a whopping 300 percent.
“Not only has there been a significant increase in the number of transactions but cash-over-valuation has also spiked across all flat types,” says Mohamed Ismail.
According to PropNex, the overall median COV for the third quarter is $12, 000 - a $9, 000 increase compared to the second quarter’s $3, 000 figure.
PropNex also notes that 79 percent of the flats in the third quarter were transacted above valuation, much higher than the 57 percent in the second quarter.
Boon for HDB sellers, bane for young couples/singles
The exuberance in the HDB market has been a boon to HDB flat owners, with many taking advantage to upgrade to a condominium in the second quarter, when prices between private properties and HDB resale flats were at its narrowest.
On the average, these HDB upgraders made at least $200, 000 in profit when selling their flats, resulting in a spike in demand for mass-market condominiums like Caspian and Alexis early this year.
Just recently in November, an Indonesian permanent resident made headlines when he reportedly paid S$653, 000 for a four-room HDB flat in Queenstown.
The price he paid was about two-and-a-half times the $262, 000 the seller and his wife paid a few years ago.
This works out to $674 per sq ft, beating the previous record of $609 per sq ft achieved in January last year, by about 10 per cent.
For young couples and singles, however, the rising prices of resale flats are causing many to reassess their cash flow position.
Abdul Khir and his wife, for instance, had given up on house hunting altogether, having looked at over 30 three-room resale flats in Woodlands, Sembawang, Yishun, Ang Mo Kio, Toa Payoh, Hougang, Serangoon, Ubi and Bukit Batok.
“We could not a resale flat as agents were asking for $2, 000 in agent fees with $5, 000 COV minimum,” says the 27-year-old technical specialist.
Normally when a COV is high, buyers have the option to apply for flats under the Built to Order (BTO) or Design Build & Sell Scheme (DBSS), where they do not have to come up with so much cash for their purchase.
However, buyers will have to wait three to four years before they can move in.
Abdul Khir did not apply for either the BTO or DBSS flats as he was unable to wait that long. However, he did try via the balloting system twice under the Sales of Balance Flat (SBF) scheme but was priced out.
The flat that he successfully balloted for was a three-room in Queenstown priced at $250,000 – way beyond his HDB loan eligibility.
“I am now applying for a rental flat in Bedok and Tampines area,” he says in a resigned manner.
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| Artist's Impression of Punggol Sails |
A call for rationality
Netizens who feel that have been priced out of the HDB market, have been up in arms, blaming permanent residents for “spoiling the market”.
However, analysts say Singaporeans should think rationally as the pricing of the four-room resale flat in Queenstown will not set a precedent for similar transactions in the area.
According to data mined from HDB’s website, the median price for four-room resale flats averages $479,000 and will remain within this range.
“I take this as a one off sale. We have not seen any prices in that area booming that much. The only reason it was transacted at such a price is that it is nicely renovated with high floors. Buyers are willing that kind of price. If their house is not that nicely renovated they will not be able to fetch that kind of price,” says Mohamed Ismail.
“This is a one-off transaction that is not reflective of overall market. The bulk of HDB resale deals hover around valuation prices. Valuers typically do not price in such one-off transactions. They would look into median-range transaction prices,” says Donald Han, managing director for Cushman & Wakefield Singapore.
In addition, analysts disagree that public housing has become less affordable as the HDB does provide options for all income groups.
“I do not agree that they are not able to afford as HDB provides other alternatives like BTO and DBSS. For those people who cannot afford should plan way ahead to buy BTO and DBSS,” says Mohamed Ismail.
No to intervention
According to PropNex, the HDB resale market will likely witness more transactions this year as there is a continual supply of resale flats which could potentially see 40, 000 transactions this year alone.
It adds that should the economy recover well, this could lead to greater demand in the HDB resale market due to a greater number of Singaporeans being able to hold well-paying or stable jobs, or if there is a greater number of permanent residents in the market.
This means prices of resale flats are set to rise further – something Singaporeans will surely gripe about.
However, analysts say, the HDB market is unlikely to introduce cooling measures, similar to those implemented by the government in the private property market in September.
“It is not at all good for HDB to interfere with market forces. The fact is, in a resale market, it is the buyers and sellers who determine the price,” says Mohamed Ismail.
“HDB has a challenging task of meeting supply with demand as it take typically two years gestation period to build. Forecasting effective demand is not easy – there’s no foolproof method to predict future demand,” says Han.
For prospective homeowners who are unable to afford HDB flats, analysts advise them to take Abdul Khir’s example – rent.
“If affordability becomes an issue – then rent. What goes up will come down – just like any market cycles. Sometimes, the best decision is to delay purchase rather than to over commit the purchase and getting stuck with huge mortgage installment payments,” says Han.
What about singles who can only buy from the resale market?
“Those who are doing well should buy “Mickey Mouse” condos. Others, should consider getting married,” says Mohamed Ismail matter-of-factly.
Planning ahead: The government’s job or Singaporeans?
MP Dr Muhammad Faisal, an assistant professor of real estate at the National University of Singapore, recently laid the blame squarely on young couples who were unable to get a flat for not planning ahead.
But can the affairs of the heart really be planned out?
Moreover, it is the government’s liberal immigration policy that has contributed somewhat to the increased demand for HDB resale flats from permanent residents.
Prospective homeowners are divided on this issue with some saying they agree but the onus still falls on the HDB.
“I agree that young couples should plan ahead but back then, how will we know that foreigners will be coming to Singapore in droves three years ago? I feel that the HDB should work closely with the Ministry of Home Affairs on the number of immigrants granted permanent residency to ensure there is adequate supply both in the resale and primary market,” says Abdul Khir.
One thing, however, remains certain.
The issues on public housing affordability and the government’s liberal immigration policy is very much hotly debated topics this year.
If not handled properly, it could cost the government dearly in the next general elections.