Potential runaway HDB resale prices could be worrying

January 3, 2022
0 Comments

The first week of every quarter, including the start of 2022, will typically be filled with investors, and home buyers who are eagerly anticipating to own their dream homes. But, will such eye popping 12.5 per cent year-on-year growth in HDB resale prices in the most recent 4Q21 be a cause of concern for policy makers and would-be flat buyers. Well! This question, on hindsight, seems reasonable given that there has been a lacklustre flat-line growth seen all of the year before in 2020 at the onset of the Covid-19 pandemic. This time round, as of 4Q21, the market is roaring its way back, perhaps a little bit too fast. If left checked, prices could run up ahead of its fundamentals.

How does the latest 2021 flash HDB Resale Price Index look like

It you take a look at the above chart, doesn’t that remind you on the price chart you commonly seen like a growth index or a company stock price like Tesla, or Alphabet (Google’s parent) running up like there is no tomorrow.

Well! If you take a step back, the apparent irrationality is likely caused by the HDB resale prices running on a double-digit pace of close to 14.0 per cent as compared to the recently announced Singapore’s overall gross domestic product (GDP) growth for the whole of 2021 at 7.2 per cent. This defies the basic laws of the market forces which usually tell us that when things are looking too frothy, along with gradual demand and supply adjustments, prices will typically fall. But, will the price falls be of something like a hard landing, or there is some cushioning of the fall.

But, does the latest HDB resale prices match with fundamentals

The question of whether the latest HDB resale price rise has a lot got to do with speculative behaviour where there has been a serious mismatch of demand and supply?

We tend to think that the answer might point to the latter as Singapore’s overall economy was basically in a shut-down mode for much of 2020. The pent-up demand we have seen in 2021 was supported by construction delays which resulted in completion delays in the Built-to-Order (BTO) market, thus forcing would-be or actual HDB buyers turning to the HDB resale market for sources of flat supply.

Moreover, with the closure of the borders, postponement of the opening of the vaccinated travel lanes (VTLs), supply chain disruptions, labour shortages, and bankruptcy of several contractors, HDB is struggling to finish the construction of the flats and subsequently hand over the completed units to the owners.

So, what are the options apart from resale HDB flats

Well! There are plenty, including considering living with your parents or in-laws, renting, waiting out for the Built-To-Order (BTO) launches/Sale of Balance Flats (SBF) exercises, or the next executive condominium (EC) launch if any.

Living with parents or in-laws

You probably think that this option should be the last option given that you or your spouse might have put up all the months/years of living together and the constant nagging, so to speak, by your parents, in-laws, siblings, or siblings-in-laws. Plus, with the work from home (WFH) still in place, the amount of space is just insufficient for privacy purposes.

But, do consider the savings, and learning to live harmoniously. Well! It is understandable that some couples/families are disappointed by the present situation of having to put up with the in-laws and/or parents for a couple of more years, but do remember that kinship ties, respect for elders, and looking out for each other continue to remain extremely important. So, as the common saying, “Give way, be tolerant, and be patient at all times, it should benefit all parties”. In other words, “Do not burn the bridges” so to speak.

Renting

Consider renting your HDB flat through the Public Rental Scheme (PRS) managed by HDB. However, if you are applying for a public rental unit, you might be eligible for under either the Family Scheme (FS), or Joint Single Scheme (JSS). However, do take note that the supply for public rental flats under the FS and JSS schemes are extremely tight as compared to previously due to competitive rentals, and limited land supply.

On an average, the rental values are for 1 and 2-room flats typically priced at around $26 to $275 based on the monthly household incomes, and types of flats applied respectively. Please note that there are several eligibility conditions that one has to satisfy, including the average monthly household incomes ranging from $800 to $1,500 respectively. For more information on the details of the PRS, please click here to find out more.

Waiting for the next Built-to-Order (BTO)/Sale of Balance Flats (SBF) exercises

While you and your spouse may be feeling a bit impatient on starting a family as soon as after marriage, but if both of you are willing to continue keeping a constant lookout for BTO and or SBF launches. For example, in the recent November 2021 BTO exercise, the average flat prices (excluding grants) ranges from $173,000 for a 3-room flat in Jurong West to $466,000 for a 4-room flat in the upcoming Tengah Housing Estate. For more information on the latest BTO prices, please see below:

Source: HDB

As for SBF launches, these launches are also be announced in conjunction with the BTO exercise. Basically, for SBF launches, the flats usually come with vacant possession are can immediately be transacted upon application. However, please do take note that such flat units might have different histories, be it forced re-possession and/or leftover units from previous BTO launches that buyers might forgo the purchase due to their individual personal circumstances. But, for interested buyers seeking for immediate units, these flats offered under the SBF could potentially be an alternative pool of available units.

Similarly, HDB does put out flats on a daily flat for sale through the Open Booking system which users can regularly go check for any available units. Unlike the SBF launches which tends to be held on certain months, flats offered through the Open Booking system are immediately available for occupation upon satisfaction of the eligibility requirements, and the buyer has the adequate financial plan in place.

Moreover, for families purchasing their BTO/SBF flats through the open booking system, they are eligible for government grants which are subjected to eligibility requirements.

Waiting for the next executive condominium (EC) launch

While the supply for new executive condominium (EC) units tend to be relatively limited given the 15-month wait required for developers to launch after their successful bids, there is still a potential opportunity to apply for a EC unit given that the latest Additional Buyers’ Stamp Duty (ABSD) rates are not applicable for new EC units.

However, potential EC buyers need to be prepare to expect tight supply, and intense competition for most EC launches due to the limitations in the supply, and the infrequent launches. For example, the 2021 EC launch of Parc Greenwich, which is located at Fernvale Lane in the Sengkang area saw some of the sold unit prices range $1,029 for a 1,216 sq ft unit to $1,379 for a 1,001 sq ft unit. The information was extracted from the website of EdgeProp.

For a general take on the EC prices for the development, the following from EdgeProp is a dot-plot graph of the prices per psf of ECs and their respective asking prices.

Source: EdgeProp.sg

Are future HDB prices expected to rocket higher

With the announcement of the latest property cooling measures on December 16, 2021, would-be HDB buyers might be concerned about the prices. However, for the first-timers, especially, those who are either Singapore citizens, or Singapore Permanent Residents (SPRs), the new round of ABSD rates do not have much impacts.

While the Loan-to-Value (LTV) limits might have declined by 5 basis points (bps) from 90 per cent to 85 per cent, it might also turn out to be a non-event, as most first-time buyers do undergo strict financial assessment before HDB or a financial institution will grant the loans the applicants, and first-timers are not one of the main targets of that December 16, 2021 property cooling measures which are being introduced to tone down the speculative behaviours of some buyers.

In addition, HDB has also announced that up to 23,000 BTO flats are being planned for launches this year and 2023. Morevover, the government is targeting to launch up to 100,000 flats in total from 2021 to 2025 which could have some cooling effect on the new and resale flat prices.

There are alternatives, but you need to do some homework

While disappointing as it is for some buyers who have been eagerly expecting their new flats to be completed or are unable to find any suitable HDB flats after a substantive number of years of searching, and disappointing, it is hope that with the latest round of cooling measures, and the increase in flat supply in the coming years, more potential flat buyers will be able to have at least a home available in time. Therefore, for the potential HDB flat buyers out there, please be patient, and it is advisable for one to do their sums carefully before putting unnecessarily huge financial capital into an overvalued HDB flat.

    Have Questions For The Author? Kindly Send Us Your Enquiry.