Hike in BTO supply may ease HDB resale price surge, but construction delays still a concern

Fri, Dec 17, 2021

THE rise in resale prices of public housing flats will likely ease slightly as the 34 per cent increase in supply of build-to-order (BTO) flats brings more options to buyers, analysts said Thursday (Dec 16).

The government announced plans to increase BTO supply of HDB flats by 35 per cent over the next two years on Thursday, after introducing fresh measures to cool the property market late Wednesday (Dec 15).

HDB resale prices have been rising steadily for 17 straight months, latest flash data for November 2021 showed, with transaction volumes also growing. November resale prices were up 1.3 per cent from the previous month, and 13.8 per cent higher on-year with price growth across all flat types as well as mature and non-mature estates, and increasing numbers of flats transacting at over S$1 million. Analysts have pointed to bottlenecks in BTO flat construction as a reason for the tight resale market.

Minister for National Development Desmond Lee said the HDB will launch up to 23,000 flats per year in 2022 and 2023, up from the 17,000 flats in 2021.

Wong Siew Ying, Propnex head of research and content, said: "Given the strong demand for BTO flats, the move to ramp up supply will give Singaporeans more opportunities to secure a new flat, as well as ensure the HDB resale prices grow at a more sustainable pace." She expects to see steady demand for new flats in estates such as Bukit Merah, Kallang Whampoa, Queenstown, and Toa Payoh.

At the same time, the resale market's wider selection of units, "generous" government grants, and immediate availability will maintain its demand, she said.

PropNex expects HDB resale volume to come in at 28,000 to 30,000 units in 2022, with resale prices projected to rise by 6 to 8 per cent for the full year 2022.

Nicholas Mak, head of research and consultancy at ERA, said: "One of the main reasons people turn to the resale market is because they can't afford the longer waiting time which comes with a BTO flat. And this waiting time is further extended by the pandemic. Introducing new BTO flats won't solve that problem."

"However, if the government can give a guarantee that they'll complete the projects within certain years and offer compensation if it's delayed, they can increase people's confidence. The longer the delivery time, the less effective it is," Mak added.

Christine Sun, senior vice-president of research and analytics at OrangeTee & Tie agreed, saying: "If the completion of the newly supplied flats remains long, people may either hold back on their purchases for a while or buy cheaper resale flats."

That said, "we have revised our price projections for the HDB resale market next year from 8 to 11 per cent to 5 to 8 per cent," Sun added.

Mak added that the increased BTO supply would reduce the number of people buying homes out of a "fear of missing out" (FOMO) or worries that prices will rise further.

Lee Nai Jia, deputy director of the Institute of Real Estate and Urban Studies (IREUS) at the National University of Singapore said it might take about a year before the market sees a discernible impact "as launches will take place progressively". "But overall, I feel prices should ease by about 10 per cent by the end of three years, based on how past policies affected the resale HDB price index."

In HDB's announcement, the board said that home buyers can expect a mix of new flats across mature and non-mature towns such as Bukit Merah, Jurong West, Kallang Whampoa, Queenstown, Tengah, Toa Payoh and Yishun in 2022.

"We will continue to monitor the housing needs of Singaporeans, taking into account long-term demographic and population trends. We are also watching the construction progress of current BTO projects closely to ensure that they can be delivered on time," the board added.

The government also announced a tightening of the total debt servicing ratio (TDSR) to 55 per cent, from the previous 60 per cent. "The TDSR threshold adjustment is not expected to affect most borrowers buying HDB flats, as the vast majority of these borrowers, around 97 per cent, have TDSRs of less than 55 per cent," said Minister Lee.

NUS's Lee also noted that the impact "may not be as significant as expected" as many buyers in the resale market use loans from financial institutions.

Among the cooling measures, the government also reduced the loan-to-value (LTV) limit for HDB housing loans to 85 per cent from its previous 90 per cent to "encourage greater financial prudence".

"The reduction in LTV limit is not expected to affect first-timer buyers significantly, especially for lower to middle income households. This is because first-timer families buying a resale flat today can benefit from generous grants of up to S$160,000 and can use their CPF savings upfront to pay for their flat," the minister said.

Sun noted that the reduced LTV would affect lower-income earners and self-employed individuals as they will have to fork out more cash for their purchases, while Lee expects it to impact buyers with limited CPF and cash savings.

The two agreed that the LTV reduction could also shift some demand from BTO flats in mature estates to those in cheaper, non-mature areas. However, they added that those who have financial support from their families, such as young couples buying homes with the help of their parents, would be less affected.