Published March 22, 2007

Positive signs in HDB resale market

While last year's fall in total HDB resale volume was largely expected, there is some room for optimism in the near future and beyond. EUGENE LIM explains why

COMPARED with the headline-grabbing private residential property market, the HDB resale market seems to have lost its shine. For the first time in a decade, the number of HDB resale flats transacted in 2006 fell below 30,000 units.

According to data from the Housing and Development Board, 2006's total of 29,723 units could well be the resale market's lowest transaction volume to date. Last year's transactions were 1,333 units or 4.3 per cent less than 2005's 31,056 units; and some 40 per cent less than the market's highest volume of 49,618 units in 1998.

A key reason for the drop in volume could be that many of the HDB home owners who had bought their flats during the peak are refusing to part with their assets as they would fetch much less today. Resale prices peaked in the fourth quarter of 1996 at 136.9 on the HDB resale price index. Compared to 4Q 2006's 103.5, the market is now some 24.4 per cent lower than the peak.

This means some home owners may incur a loss if they sell their flats now. This phenomenon affects home owners of all flat types who had bought their resale flats during the peak year. But it is the owners of larger flats that will feel the biggest pinch should they decide to sell today. For example, an executive flat in Pasir Ris bought for $520,000 in 4Q 1996 can be sold for less than $350,000 today. So, unless there are compelling reasons to dispose of the flat, many of these home owners would rather stay put and wait for better times to return; or look for opportunities for windfall gains from other investments to negate their losses.

Based on records of resale transactions for executive flats during that period, there may be some 6,000 to 8,000 home owners that are suffering a paper loss. Another factor that caused resale volume to fall last year was the keen competition for buyers in that market segment.

First-time buyers can choose new flats from HDB's on-going Build-To-Order (BTO) programme; or the new Design, Build and Sell Scheme (DBSS) that was successfully launched by private developers last year. In 2006, the HDB marketed some 2,796 units under the BTO scheme while a private developer sold out 616 units under the pilot DBSS at Tampines. More of such launches are expected this year and in the future.

Buyers looking for ready units can opt for HDB's Walk-In Selection (WIS) programme and, more recently, its new programme to sell unsold 'new flats' more than five years old in the resale market. Last year, the HDB launched some 2,771 units via the WIS programme while it has just started selling 250 of the unsold flats in the resale market through appointed agents.

For 2007 and beyond, the HDB is expected to continue with this proactive approach in clearing its completed but unsold stock of flats.

Buyers with a larger budget would be drawn to mass market condominiums as these are typically priced within their budgets. According to numbers from the Urban Redevelopment Authority, there were 2,936 new sale transactions outside the central region in 2006, up from the 2,363 units in 2005 and 2,179 in 2004. With good take-up, developers are expected to launch more of such projects this year.

While last year's fall in total HDB resale volume was largely expected due to the keen competition for home buyers, there is some room for optimism for the resale market in the near future and beyond.

First, last year's executive flat resale volume of 2,229 units was higher than 2005's 2,036 units; 2004's 1,792 units; and 2003's 1,793 units. Similarly, last year's resale volume of 6,421 units for five-room flats was just a shade lower than 2005's total of 6,434 units but still higher than 2004's 5,874 units and 2003's 5,835 units.

In absolute numbers, the market for larger flat types is actually doing better than in previous years, in spite of the on-going competition for buyers. This shows the return of confidence and appetite for larger resale HDB flats. With the current pace of economic growth, we should see more buyers upgrading to these larger flats over time. As the HDB has frozen the building programme for new 5-room and executive flats, buyers will have no choice but the resale market.

Second, although the HDB resale price index may seem to indicate that prices in general have only increased by 1.9 per cent for the whole of last year, the actual transacted prices of resale flats in most mature estates increased more in 2006. (See table)

Mature estates are traditionally popular and demand for flats in these locations is strong relative to available supply. Also, these locations are not affected by over-supply compared with locations where there are still stocks of unsold new flats.

Elsewhere, it is usually the well-renovated flats on high floors, near MRT stations or town centres that can command a premium. Depending on specifics, the premiums for three- and four-room flats are about $5,000 to $10,000 above valuation while the five-room and executive flats may command premiums of $10,000 to $20,000.

For 2007, we are likely to see the HDB resale market return a similar performance as last year. Market conditions are stable now, reflecting actual supply and demand conditions. Total resale volume is expected to be similar to last year's 30,000 units. However, proportionately more transactions are expected for the larger flat types. Five-room and executive flats currently account for about 22 and 8 per cent of resale transactions respectively. This may increase to 24 and 10 per cent respectively if the current momentum holds.

Resale prices this year are expected to rise by 2 to 4 per cent as a whole; but sellers in mature estates are likely to see more substantial gains than the market average.

In the longer term, as Singapore moves towards a population of 6.5 million people, the total resale volume is expected to increase in line with the projected population increase. All in all, there is quiet optimism as the HDB resale market moves into a mature phase.

The writer is assistant vice-president of ERA Realty Network Pte Ltd