The HDB resale market, being an open market for buying and selling public housing flats, has always been perceived to be a resilient and stable one with minimal downside risks compared to the private residential counterpart.
According to figures published by the Housing Development Board (HDB) and the Urban Redevelopment Authority (URA), even during the height of the Global Financial Crisis, the public housing resale price index only lost 0.8 per cent in a single quarter before the upward momentum was restored, as compared to a 24.9 per cent drop in private residential prices over four consecutive quarters. Similarly, during the Asian Financial Crisis back in the 1990s, private residential prices plummeted by 44.9 per cent, while HDB resale prices only dropped by a much slighter 28.0 per cent.
price indices
However, following the introduction of various rounds of cooling measures, the table seems to be turned around. Flash estimates published by the two government agencies on 1st Oct 2014 indicates that HDB resale prices and private homes prices have softened from their last year’s peaks by 6.8 per cent and 3.8 per cent respectively. Surprisingly, the HDB resale prices have been weighed down more than the private home prices this time round. Besides the large number of Build-to-Order (BTO) flats pulling demand away from the resale market, there are two other primary reasons behind such an abnormal trend.
Exclusive Demand Curbs in the HDB Resale Market
Firstly, the set of measures targeting the HDB resale market is harsher than those on the private side.
In the private residential market, the Additional Buyers’ Stamp Duty is meant to curb excess demand from foreign buyers. However, there is no additional taxation payable by first-time local buyers. Moreover, the duty itself only adds on additional purchasing costs but does not put an absolute bar on buying. Given some discounts offered by developers to offset such additional cash outlay, buyers with real demand are not much worse off compared to before.
In the HDB resale market, however, new permanent resident (PR) couples are pushed onto the waiting list for up to three years with no choices. In fact, before the rule change, approximately 20 per cent of resale flats were sold to PRs, of which about half are new PR families. Effectively, with the drop-outs of new PR families, the
overall demand for resale public housing flats was cut by about 10 per cent. So 3 years later the demand increase by 10%
Varied Holding Powers
On the supply side, those HDB upgraders who opted for a new Built-to-Order (BTO) flat, need to sell off their previous flat within six months from the day which they collect keys to their new flats. The Ministry of National Development (MND) expected about 6,000 such “have-to-sell” flats to hit the resale market in each year from now to 2016, up from 2,800 cases in 2013. This is equivalent to the amount of resale transactions for 4.4 months, based on the total number of 8,170 resale transactions that took place in the first half of this year.
The demand from PR should fit in for resale increase.
With a disposal deadline to meet, flats sellers have to let go at an increasingly lower price, especially in a market with shrinking buyer pool(How can shrinking when demand is increasing). Worse still, buyers’ affordability has been further limited by the revised Mortgage Servicing Ratio (MSR) framework, which requires buyers to use only up to 30 per cent of their monthly household income to purchase a HDB flat. This spiral of factors has consequently caused the HDB resale prices to take a fast dive.
On the private resale side, the cooling measures have deeper impact on transaction volume rather than prices. Although the Total Debt Servicing Ratio (TDSR) has reduced buyers’ mortgage limits, sellers’ holding powers are still strong in a sustained low-interest environment, and they are not forced to sell within a certain timeframe like what we see in the HDB resale market. While potential private home buyers shop around and wait for further price reductions, the gap between buyers’ expectations and asking prices widens further. In such a tug of price negotiations, transaction volume has fallen to a trough. On a year-on-year basis, private residential resale transaction volume has been on a downtrend for 6 consecutive quarters, while prices remained stagnant.
Fast Price Drops in HDB Resale Market Not Necessarily Bad
A simple conclusion so far is that government interventions have more descent impact on public housing prices, while the private home prices are not easily shaken by factors other than the economic fundamentals. From a positive angle, a faster fall in HDB resale prices may also trigger a sooner relaxation of cooling measures than for that to happen in the private residential market.
I chose to tell you what I want you to know, look at the graph anything wrong.