Soft landing likely for HDB market

SINGAPORE- At the start of last year, the question was whether the Government would succeed in its policies to cool down an exuberant housing market.

A year on, Housing Board resale prices have slipped, cash premiums have fallen and fewer flats are changing hands.

Is the HDB resale market in danger of a hard landing?

Experts say no.

"There is almost no possibility that public housing is heading for a hard landing this year," says R'ST research director Ong Kah Seng.

A hard landing would mean a fall of something like 15 to 20 per cent, say analysts.

Since the late 2000s, flat prices have soared. From end-2006 till end-2010, the resale-price index - tracking prices of HDB resale flats - rose 66 per cent. This was seen as a source of voter unhappiness in the 2011 General Election.

The Government has tried to bring the market gently back down to earth.

HDB resale-flat prices have fallen. The cash premiums which buyers pay, or cash over valuation (COV), have also fallen. Median COV fell from a high of $35,000 last January to $8,000 in November.

This is on the back of more "negative COV" deals, in which flats go for less than their valuation. The Singapore Real Estate Exchange (SRX) reported 97 such deals in November, compared to just three or so a month in the first half of last year.

And predictions from analysts are that resale prices will fall further: by 5 to 10 per cent in the whole of this year - which still counts as a soft landing.

A hard landing is unlikely, barring another global financial crisis, and economists are optimistic about this year, notes SLP International Property Consultants head of research Nicholas Mak. He observes that the last time the housing market fell as steeply as 20 per cent was during the Asian financial crisis.

One reason for the soft landing is that deliberate government cooling measures - rather than external blows - lie behind the current market slide.

The maximum tenure for HDB loans was cut from 30 years to 25 years. The mortgage-servicing ratio limit was lowered so that buyers can use only up to 30 per cent of their gross monthly income to repay HDB loans, down from 35 per cent. And new permanent residents now have to wait three years before they can buy an HDB resale flat.

Beneath these top-down restrictions, however, buyer demand remains.

The high home-ownership rate of 90 per cent does not stand in the way of demand, since existing homeowners may still move house.

Such buyers might form about 70 per cent of the resale market, says ERA Realty key executive officer Eugene Lim.

What about the Government's ramped-up supply of new Build-To-Order (BTO) flats in the last three years? More than 77,000 BTO flats were launched from 2011 to last year, more than twice the number in the three years before.

But there is limited overlap between BTO- and resale-flat buyers, so higher BTO supply will not dampen resale demand.

What of the private-property market, where prices are falling? Could this siphon off demand from resale? Some buyers might switch, says Mr Ong - but not many. "The shift in demand from resale flat to private residential will be very marginal, as the price gap between the two types of properties is still very wide," he says.

Analysts instead expect prices to stabilise this year.

"It is more likely that resale prices will go on a slight descent before plateauing," says OrangeTee head of research Christine Li.

Lower prices may then have their own in-built braking mechanism: attracting buyers who were biding their time.

In any case, the BTO programme is tapering off this year. This could drive some buyers back into the resale market.

In addition, "the Government can easily remove or ease cooling measures if prices drop too fast for its taste", says Ms Li.

As for the risk of an oversupply, the Government has another tool to deal with that: the Selective En bloc Redevelopment Scheme, or Sers.

Under this scheme, which aims to renew older public-housing estates, old flats are demolished. Residents have the choice of moving to new flats elsewhere, with their neighbours.

By speeding up Sers and demolishing more blocks, the Government can create a need for new flats and soak up excess supply.

The authorities managed to moderate the overheated HDB market last year. This year, it seems likely that they will pull the cooling manoeuvre off: softly, gently, and without a crash.

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