Rise in HDB resale prices to ease next year from property cooling measures: Analysts

Michelle Ng

Dec 27, 2021

SINGAPORE - Home buyers deterred by high Housing Board (HDB) resale flat prices may have a better shot at securing a unit next year, given that new property cooling measures are widely expected to dampen the red-hot market.

The double-digit growth earlier tipped for HDB resale flat prices has been lowered by at least two property analysts to more manageable increases of around 5 to 8 per cent.

Professor Sing Tien Foo, director of the Institute of Real Estate and Urban Studies at the National University of Singapore (NUS), expects the gap between sellers' asking prices and buyers' to narrow in 2022.

"Sellers may have to set more realistic asking prices to reduce the time to sell their flats in the resale market," said Prof Sing.

"The tightened loan-to-value (LTV) limits on HDB housing loans will stretch the financial budget of buyers, which may force them to be more realistic when negotiating with sellers," he said.

The total debt servicing ratio for borrowers was tightened on Dec 16 while LTV limits for HDB housing loans were reduced to cool the property market and encourage greater financial prudence among buyers.

The additional buyer's stamp duty (ABSD) rates were also raised, although levies for Singaporeans buying their first residential property remained at zero.

But it is unlikely that the market will turn into a buyers' one overnight, said Ms Christine Sun, real estate agency OrangeTee & Tie's senior vice-president of research and analytics.

This is because the tight supply in the HDB resale market will persist into next year as many Build-To-Order (BTO) flats continue to face construction delays, and buyers who need immediate housing may still turn to resale units, she said.

The HDB has committed to launching up to 23,000 BTO flats each year in 2022 and 2023 to meet the strong demand for public housing.

This is after BTO application rates rose from 3.7 applicants per flat in 2019 to 5.5 applicants in 2021, despite the increased supply injected by the HDB.

Prof Sing noted that while the bigger supply over the next two years may gradually ease the demand crunch in the BTO market, the "large demand overhang" of more than 80,000 applicants, in particular first-timers, may take at least two to three years to clear.

The latest cooling measures are one of two key policy changes that will be instrumental in shaping the future of the public housing market, said property analysts.

The other big policy move was the introduction in October of a prime location public housing (PLH) model which subjects owners of future prime area HDB flats to stricter buying and selling conditions in order to keep such coveted homes affordable and inclusive.

A BTO project in Rochor that was released in November is the only development to go on the market so far under the PLH model, with at least one development to be launched each year.

The aim of the PLH model is to reduce the "lottery effect", a major point of discontent in the HDB resale market where some first-time buyers earn a handsome profit when selling their well-located flats.

National Development Minister Desmond Lee told a media briefing on Dec 16 that while the house price-to-income ratio - which is used to benchmark housing affordability - in the HDB resale market is still below historical averages for now, it is on a "clear upward trend".

HDB resale flat prices have increased sharply after a six-year decline, rising by about 15 per cent since the first quarter of 2020.

"If left unchecked, prices are likely to run ahead of economic fundamentals. This will increase the risk of a destabilising correction later on that will hurt many households," Mr Lee said.

This year also saw a record number of million-dollar HDB resale flats sold.

As at Dec 20, 241 HDB resale flats have changed hands for at least $1 million this year, almost three times more than the 82 such transactions last year.

The most expensive unit was a five-room flat at Block 273B Bishan Street 24 - in a Design, Build and Sell Scheme (DBSS) project called Natura Loft - that sold for $1.36 million this month.

Mature towns such as the central area, Bishan, Queenstown and Toa Payoh typically see more deals of this magnitude.

Mr Mohan Sandrasegeran, research and content analyst at real estate agency Ohmyhome, said the stellar HDB resale market performance this year was "not entirely unexpected" owing to a number of factors.

"When the year began, HDB resale prices were already on its road to recovery and flat owners saw it as an opportune time to sell their units," he said.

"Throughout the year, vaccine optimism, a positive economic outlook, renewed market confidence and a low interest rate environment fuelled demand for HDB resale flats."

However, some challenges remain. Waiting time for a BTO flat has increased to between four and five years, up from the three to four years pre-pandemic, as the construction sector continues to be plagued with manpower and supply shortages caused by Covid-19 border curbs.

Some BTO projects have lagged even further behind.

Home buyers of five BTO projects in Bukit Batok, Bukit Panjang, Woodlands and Clementi were hit with a further two to three months' delay when the original contractors, Greatearth Construction and Greatearth Corporation, suddenly went bust in August.

A Punggol BTO project, Waterway Sunrise II, will have its completion date delayed for more than a year due to contractor issues. The HDB said buyers will be compensated for the hold-up.

Because of these uncertainties, property analysts say those with immediate housing needs will likely continue to turn to HDB resale flats instead of rolling the dice with BTO units.

Mr Sandrasegeran noted that around 31,000 HDB flats in towns such as Bukit Batok, Punggol, Sembawang and Woodlands are expected to complete their mandatory five-year minimum occupation period and become eligible for resale next year, which may inject some fresh supply into the market.

While he expects transaction volumes to dip in the first half of 2022 as the market readjusts to the cooling measures, just as it did following the July 2018 measures, he does not foresee an immediate drop in prices.

This is due to the "sustainable nature" of HDB resale prices, which rarely see big and sudden fluctuations and has the support of a big pool of potential buyers, he said.

"Potential buyers might adopt a wait-and-see approach to ascertain the impact of the property cooling measures and the potential hike in interest rates by the US Federal Reserve, as borrowing costs in Singapore will rise as well," he said.