0.6% drop in Q3 HDB resale price index surprises analysts

Decline gains momentum despite signs of stabilising in 2016 and increases in CPF grants

Oct 03, 2017

Kalpana Rashiwala

THE Housing & Development Board's (HDB) flash estimates for the third quarter surprised some consultants with a resale price dip of 0.6 per cent over the second quarter.

This follows quarter-on-quarter declines of 0.1 per cent in Q2 this year and 0.5 per cent in Q1.

Since Q4 last year, the HDB resale price index has shed 1.3 per cent. The third quarter's decline is the biggest since Q1 2015, when the index shed one per cent.

HDB said on Monday that the resale price index for the full third quarter, together with more detailed public housing data, will be released on Oct 27.

Market observers commented that after showing signs of stabilising last year, the decline in the HDB resale price index gained momentum in Q3 2017. This surprised some of them as this was in contrast to the 0.5 per cent quarter-on-quarter increase in the Urban Redevelopment Authority's flash estimate for its third quarter private home price index.

OrangeTee's head of research and consultancy Wong Xian Yang too found the HDB resale price index's continued decline in Q3 surprising, given the enhancements earlier this year in CPF Housing Grants for first-timers buying resale flats and the uptrend in HDB resale volumes seen so far this year.

ERA Realty Network key executive officer Eugene Lim suggested that Q3's price contraction could be due to two initiatives that the Housing Board spelt out in July to help young couples get their first homes sooner directly from HDB - shorter waiting times for selected Build-To-Order (BTO) projects, and the Re-Offer of Balance Flats.

"This gives some potential buyers more things to think about, and they could be adopting a wait-and-see approach before deciding whether to buy a resale flat or a new flat," said Mr Lim. "After all, the main deterrent with regard to BTO flats is the three to four-year waiting time."

Edmund Tie & Company's head of research, Lee Nai Jia, said that according to feedback from the ground, the number of enquiries for older HDB resale flats, especially those with balance tenures of under 60 years, has fallen, and the time needed to sell a unit is longer - unless sellers are willing to lower the price.

That said, agents are still sanguine about prospects for the HDB resale market. Said Mr Lim of ERA: "We expect resale flats to remain popular, as there is theoretically no income ceiling (as long as one does not take the CPF Housing Grant or a loan from HDB), and it is the more viable option available for buyers who wish to live in mature estates, as BTO launches in such areas are sporadic."

He predicts slight price changes for the rest of the year as the 30 per cent mortgage servicing ratio caps buyers' purchasing power. "Buyers remain price sensitive, unwilling to pay a premium."

For the whole of this year, he expects the change in HDB's resale price index to range from -1.5 per cent to +1 per cent, with transactions coming in at 21,000-22,000 units - compared with 20,813 last year.

PropNex Realty chief executive Ismail Gafoor predicts a drop of one to 1.5 per cent in the HDB resale price index for 2017, with the index likely to turn positive in the second half of next year as the market is still treading through the supply of BTO flats from HDB, as well as the supply of resale units. "It will take some time, probably the next three quarters, for demand to absorb these units." He expects resale transactions to exceed 22,000 this year.

Mr Wong of OrangeTee argues that given the high positive historical correlation between the private residential and HDB resale markets and a likely recovery in the private market, "we expect the continued decline in HDB resale prices to be mild and shortlived".

Prices have more or less stabilised on the back of higher volumes and are expected to fluctuate slightly in both directions, he added.

The HDB also said on Monday that it will offer about 4,800 BTO flats in Geylang, Punggol, Sengkang and Tampines in next month's BTO exercise. This will bring the total BTO flat supply for 2017 to about 17,500 units. There will also be a concurrent Sale of Balance Flats exercise.