How HDB market will fare with more new units in 2024

Christine Sun

Jan 12, 2024

Great anticipation and excitement for the public housing market are expected in 2024. The second half of the year will likely see a surge in market chatter as many new HDB flats will be released for sale under the new Plus, Prime and Standard categories.

The new housing concept will mark a significant milestone for real estate.

First-time buyers will be keen to find out the specifics of a Plus flat, including the exact locations and the price range. Home owners, too, will be curious to learn how this new classification will impact resale prices of their flats.

Moreover, new regulations will permit singles to buy new flats in Prime and Plus locations. However, the supply of flats that require a minimum occupation period (MOP) by owners will shrink in the resale market.

How will these developments influence the HDB market, especially concerning resale prices and demand?

Market to maintain stability

Despite the challenging economic conditions, the HDB resale market has shown remarkable stability, and we anticipate this positive trend to continue in 2024.

Since the implementation of property cooling measures in September 2022, the growth rate of resale prices has slowed down significantly. HDB’s flash estimates reveal that resale prices rose by 4.8 per cent in 2023, less than half the 10.4 per cent growth in 2022 and considerably slower than the 12.7 per cent jump in 2021.

The smaller price growth could be attributed to the increase in new flat supply, shrinking demand and buyers resisting further price hikes due to inflationary and affordability concerns.

The public housing market has witnessed a shift in demand from the secondary market to the primary one. More than 63,000 Build-To-Order (BTO) flats were launched for sale from 2021 to 2023.

To meet its supply target of 100,000 flats from 2021 to 2025, the Government is expected to launch an additional 37,000 new units in 2024 and 2025. The 19,600 homes to be launched in 2024 are more than the pre-pandemic supply of between 16,000 and 17,000 flats a year, while 17,300 units will be launched in 2025.

The increased new flat supply will continue to give buyers more housing.

With the waiting times for new flats being reduced as construction steps up and more BTO flats are launched in attractive locations, we anticipate that more buyers will turn to the BTO market. As demand pressure eases, the resale market may experience a more modest growth rate in 2024.

Sellers face competition

Sellers may continue to face intense competition for buyers. Those who are keen to buy a BTO flat now have a higher chance of obtaining a new flat, with the recent stricter penalty for those who do not book a flat when invited to do so. This new ruling discourages less serious buyers from applying for a flat, thereby increasing the chances for more serious applicants.

Furthermore, the overall application rates for BTO flats have fallen dramatically recently.

For instance, the median application rates for first-time applicants for three-room and bigger flats were 0.9 and 0.8 application for each flat, respectively, in the fourth-quarter sales launches in October 2023 and December 2023. These are significantly lower than application rates during the Covid-19 pandemic years (2020 to 2022), which ranged from two to 6.8 applications per flat.

The number of applicants similarly plunged to 13,411 during the December BTO exercise, from the average of 22,453 applicants from February 2022 to December 2023. With the backlog of first-time buyers being cleared after the pandemic, future buyers now have a better chance of obtaining a new flat.

As more buyers return to the primary market, it could be more challenging for sellers to attract buyers. It is imperative for them to be aware of the market changes and adjust their price expectations.

Steep price correction is unlikely

However, competition from the BTO market is unlikely to cause a major price correction in the near term as fewer flats will be available for resale.

According to HDB estimates, the number of flats reaching the end of their five-year MOP is set to fall to 11,952 in 2024 from 30,920 in 2022 and 15,549 in 2023. The scarcity of MOP flats may help to support prices in certain locations.

Furthermore, the existing home stock may be reduced further. A growing number of flat owners are delaying their upgrading plans and choosing to remain in their current flats, largely due to the lasting effects of the property cooling measures and the high replacement cost of a new home.

Therefore, the tight housing stock may keep a lid on steep price declines. However, the increase in BTO supply can help address the supply-demand imbalance and prevent further escalation of resale prices, leading to better price stability in the long term.

Benefits from new classification system

The market will see the introduction of Plus, Prime and Standard flats in the second half of 2024. Prime flats are in the choicest locations in Singapore and are usually closer to the city centre. These flats will come with the most subsidies and have the tightest selling restrictions and a 10-year MOP.

Comparatively, Plus flats are in locations outside the Central Area but are near MRT stations or amenities. These flats come with fewer subsidies and restrictions than Prime flats but have a similar 10-year MOP. Future Standard flats are located islandwide and entail standard subsidies and restrictions and a five-year MOP.

The new housing model may also benefit some sellers, especially those who own flats in future Plus locations. This is because the longer 10-year MOP, resale rules and subsidy recovery of BTO flats may steer some families towards the secondary market, where resale flats in Plus locations still have a five-year MOP and fewer restrictions.

Such flat owners could gain from the increased demand since their units will become rare assets in the market. Smaller resale flats may face price pressures as eligible singles can now buy new two-room Flexi flats in Prime and Plus locations directly from the Government from the second half of 2024.

Optimistic overall outlook

As we look ahead to 2024, the overall HDB market outlook remains optimistic. The wave of interest rate hikes has already receded. As mortgage rates moderate, housing affordability will improve.

Moreover, most home owners are standing on a much firmer footing as household balance sheets remain healthy. Existing property cooling measures have also prevented buyers from over-leveraging and taking out unsustainable loans for property purchases.

Barring external shocks or unforeseen circumstances, the market is expected to stay stable, with prices growing at a slower clip of between 3 per cent and 5 per cent in 2024. Around 26,000 to 28,000 resale flats could change hands this year, which is on a par with 2022 and 2023 resale volumes, but lower than the 31,017 transactions inked in 2021.

The writer is chief researcher and strategist at OrangeTee Group.

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