Win-win scenario in HDB resale market

Stabilising prices and increased CPF Housing Grants for first-time buyers make it a good time to enter the market.
PHOTO: The Straits Times

Housing and Development Board (HDB) flats house over 80 per cent of Singapore's population and, more often than not, are the first choice of housing for young families. A perennial question among this group of buyers has always been: Build-To-Order (BTO) flats versus resale flats, which is the better option?

While BTO flats are cheaper, they come with a longer waiting time of around three years before buyers can move in. Resale flats are pricier, but the sale process takes a shorter time. Buyers' choice would therefore depend heavily on their individual circumstances. However, with stabilising resale prices and increased Central Provident Fund (CPF) Housing Grants, resale flats have become an increasingly attractive option lately.

In 2016, resale HDB flat prices were almost unchanged, dipping by only 0.1 per cent. Over the same period, the number of HDB resale transactions increased 8 per cent to 20,813 units. Among these transactions, there were 20 units that changed hands above the S$1 million mark. Evidently, resale flats are popular choices among buyers.

Buyers returnPhoto: The Business times

Big price drops unlikely

There are several reasons why the number of buyers is on the rise. A key one is that prices have fallen from their peak in 2013 and have been stable since mid-2015. It is extremely unlikely that HDB resale prices will register huge drops in the near future, as buying activity is already picking up at current price levels. Given the limited downside risk, buyers can be more confident in their purchase.

Also, HDB resale transactional information is available publicly. Buyers no longer need to be afraid of getting a bad deal by "overpaying" a premium above the flat's valuation. They can easily check against HDB's database, which is updated on a daily basis, prior to any negotiations. Armed with such information, buyers now have a firm basis on which to centre discussions.

4,056 flats launched in Feb 2017 BTO exercise

  • Bounded by Punggol East and Punggol Drive, located along Waterway@Punggol and near Serangoon Reservoir, Waterway Sunrise II will have 1,014 2-room Flexi, 3-room and 4-room units.
  • Located at the Punggol Northshore district, the development offers 801 units comprising 2-room Flexi, 3-room, 4-room and 5-room flats, and will also have a childcare centre.
  • Located along Tampines Avenue 8, Tampines Greenbloom will offer 319 4-room, 5-room and 3-Generation units.
  • Located along Tampines Avenue 8, Tampines GreenFlora will also have a total of 319 homes, comprising 4-room, 5-room and 3-Generation units.
  • Shaped like an arc, the development is located in the northern part of Clementi town, and will have 1,179 units of 3-, 4-, 5-room, and 3Gen flats.
  • For Clementi Peaks, 424 units of 3-, 4-, and 5-room flats will be offered for sale.

Recently, Finance Minister Heng Swee Keat announced during Budget 2017 that the amount of grants available to eligible first-timer buyers would be increased with immediate effect. Previously, the Family Grant was S$30,000, but has since been increased to S$50,000 for first timers buying a four-room or smaller resale HDB flat and S$40,000 for those buying a five-room or larger resale flat. Together with the Additional CPF Housing Grant and Proximity Housing Grant, the total amount a first timer is eligible for is now a maximum of S$110,000. Effectively, this makes resale flats more affordable for buyers. This is expected to swing more buyers to the resale market, especially those still deciding between a BTO flat and resale flat, as they capitalise on the higher grant amounts.

Hence, the current market is a favourable one for buyers. Now would be a good time for buyers to consider committing to a purchase, especially if they have been sitting on it for some time.

Should I sell my flat now?

On the other hand, some sellers might have been reluctant to put their unit on the market as prices are lower than the peak some three-and-a-half years ago. However, current market conditions are still favourable for sellers.

For one, HDB resale prices were on the rise from 2005 to 2013, increasing by a total of 104 per cent over 31 quarters. In comparison, the recent slide in prices was only 9.9 per cent over 14 quarters. Most sellers would still be making a healthy profit even if they were to sell today, especially if their purchase was a BTO flat.

Read also: BTO v resale flat: What adds up for first-timers?

For sellers who are looking to upgrade to a private residence, now is an opportune time to make the switch. Private residential prices have been on a decline; and there is abundant supply in the market. Upgraders would be spoilt for choice as developers continue to keep prices attractive in order to woo more buyers.

Of course, there are concerns among sellers that prices would increase after they have sold their unit. However, this is not very likely to happen. As National Development Minister Lawrence Wong said, the government expects HDB resale prices to remain stable due to the healthy supply of resale flats.

Read also: Shorter wait for BTO flats for young couples

It is worth noting that the Mortgage Servicing Ratio (MSR) compels buyers to keep their monthly mortgage repayments to 30 per cent of their household income, thereby capping the maximum loan amount available to them. Any price increase will therefore be tied to income growth. Given that Singapore's economic growth is forecasted to be in the region of one to three per cent in 2017, any price increase would be a gradual process, instead of a sudden spike.

Why first-time homebuyers should spend less on their BTO flat

  • In Singapore, buying your first Build-To-Order (BTO) flat may be one of the biggest and most important financial decisions that you and your spouse make in your lives.
  • But some homebuyers may adopt a flawed logic that it may be okay to overspend for their first BTO flat because they would always be able to sell it at a higher price in the future. We should be cautious of seeing HDB flats merely as an investment.
  • Purchasing a BTO flat that is within your means gives you the financial flexibility to pursue other important financial goals, such as helping to plan for retirement.
  • Younger Singaporeans in particular may find themselves with many financial goals to manage. These include an emergency funds, sufficient insurance coverage and excess cashflow in preparation for their children in the future.
  • You may have plans for kids in the future, but this does not mean you need to get a 5-room flat near a primary school today, especially if your budget is tight.
  • How much is too much for your first BTO flat? Firstly, your monthly repayment should not exceed one quarter of your combined gross monthly salary.
  • The other rule is not to spend beyond 5 years of your combined annual gross salary. A couple with a monthly income of $5,000 should avoid buying a flat that costs more than $300,000.
  • BTO flats might be built in standardised sizes but that does not mean prices are similar across the board. In fact, the variation in prices within a similar type of unit (e.g. 4-room flat) can sometimes be quite different across estates.
  • For example, during the May 2016 BTO launch, a 4-room flat at Ang Mo Kio was selling at an average of $440,000. The same 4-room flat further up north in Sembawang would cost an average of $260,000.
  • Even within the same estate itself, prices can vary significantly for the same unit type. A 4-room flat in Sembawang can range between $235,000 and $289,000.
  • First-time buyers whose combined monthly household income is less than $8,500 will be eligible for the Special CPF Housing Grant (SHG) of up to $40,000, if they buy a 4-room or smaller flat in a non-mature estate.
  • The best way to think about the purchase of your first BTO flat is to consider it as your home, rather than an investment asset. You should find a home you can comfortably afford, instead of squeezing yourselves dry in the hope that you can always sell it for a profit in the future.

Also, with the increased grants, there will be more buyers looking to purchase resale flats. Selling may likely be an easier and faster process now. However, sellers should be cautioned against rashly increasing their asking prices for their flats in view of the higher grant amounts, especially if the change is not backed by transaction data. HDB flats are very similar products and buyers can easily switch to sellers who did not raise prices.

No perfect time

Moving forward, we are not expecting huge changes to the HDB resale market. Transactions will probably receive a boost from the higher grant amounts. We are expecting a 10 per cent increase in resale volume this year over 2016, in the region of 22,000 to 23,000 units. Price wise, we might be seeing a modest uptick this year, in the range of 0.1 per cent to 0.5 per cent for the full year.

Unlike in the private residential market, where emphasis is placed on timing for investment purposes, the HDB resale market is much less speculative. Thus, our advice to any prospective buyer or seller is to focus on need instead. There is simply no perfect or best timing to enter or exit the HDB resale market.

Read also: Price guide & analysis: HDB BTO launch Feb 2017


This article was first published on Mar 30, 2017.
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