Tuesday, April 11, 2006

HDB resale market: changing landscape

 THE last two years have seen some changes in Housing & Development Board (HDB) policies that have impacted the resale market in some way or other. This trend is expected to continue as the HDB is likely to make changes periodically to cater to changing market conditions and buyer profiles.
 
A stronger economy this year should boost confidence among home buyers so we expect another active year for the HDB resale market.
Since 1Q 2002, the HDB resale price index has risen by some 11.7 per cent over 12 consecutive quarters to a high of 106.7 in 1Q 2005. Prices of resale flats increased though the Singapore economy and employment market were going through challenging times. Many in the market pointed to the 'cash-back' scheme for artificially propping up resale prices, despite the contrasting market fundamentals.
On April 1, 2005, HDB put a stop to the shady practice of over-declaring resale HDB prices, supported by inflated valuations, to get higher bank loans. The authority required all resale flat transactions involving a bank loan and the use of CPF savings to be supported by a valuation report from a valuer assigned by the HDB.
 
A knee-jerk followed and the 2Q 2005 resale index dipped 4.8 per cent, from 106.7 to 101.6. In the third quarter, the HDB resale price index continued to dip to 101.2 before edging back up to 101.6 in the fourth quarter. As at 4Q 2005, HDB resale prices were 4.5 per cent lower than the previous high of 111.1 in 1Q 2000, and some 22.1 per cent lower than the market's all-time high of 136.9 in 4Q 1996.
In 2003 and 2004, due to the downgrading trend brought on by the stalled economy, resale flat buyers showed a preference for smaller flats. Three-room flats accounted for about 36 per cent of resale transactions, four-room about 41 per cent, five-room about 17 per cent, and executive flats about 6 per cent.
Last year, there were more upgraders than downgraders as the economy improved. Three-room and four-room flats made up 33 and 39 per cent respectively of resale transactions, while the proportion of five-room and executive flats rose to about 21 and 7 per cent, respectively.
 
Resale volume
The resale market peaked in 2001 with some 41,839 resale applications. Since then, the number of resale applications has been declining. Last year's total of 31,056 was the lowest since 1999's 31,267.
One of the main reasons is the wider choice available today. Besides the resale market, home buyers can buy new flats under HDB's Build-to-Order (BTO) scheme or select ready flats from the Walk-in-Selection (WIS) programme.
 
The HDB has been actively trying to clear its stock of unsold new flats through the WIS programme in the past two years. In 2004 and 2005, 22,473 units were launched through this programme. Completed but unsold five-room (47.6 per cent of total units) and executive (27.4 per cent) flats formed most of the units.
 
The HDB has also started to sell unsold 'new' flats that are more than five years old in the resale market. Last year, in a test case, it put 100 such flats on the resale market. As they were well received, HDB is expected to offer more such units this year.
 
These efforts by HDB to clear stock compete directly with the resale market for buyers and may have impacted the resale volume in some way. Nevertheless, market fundamentals are strong and there is always ready demand for competitively priced and well-located resale HDB flats.
 
The HDB made some policy changes in early March, one of which was to make the resale levy a fixed amount pegged to the flat type of the first subsidised flat. This gives greater certainty to flat owners deciding whether or not to purchase a second subsidised flat. As most flat owners, in particular those who own larger flats, will enjoy substantial savings under the new system, some may be encouraged to sell their first subsidised flat to buy another subsidised flat. If this practice catches on, the resale market will lose some buyers to the HDB.
 
Nevertheless, those who buy from the resale HDB or private property market don't have to pay any levy at all. So, even though the resale levy is now fixed, it may not have a big impact on the HDB resale market, should most home buyers take this route.
 
A stronger economy this year should boost confidence among home buyers, so we expect another active year for the HDB resale market. For practical reasons, four-room flats are expected to continue to be the favourite among buyers. Though there will be increasing interest in five-room or larger flats, the resale market will face competition from HDB's WIS scheme, particularly where it is clearing stock.
 
Besides the WIS programme, the HDB may be selling some of its unsold stock in the resale market. This means that buyers in locations where HDB is trying to clear stock will have a wider choice, and this should put a check on resale prices in those areas.
 
As such, any rise in HDB resale prices this year is expected to be marginal as there is ample stock in the market. For 2006, we may see only a 2-3 per cent increase in resale prices. We expect the number of resale transactions in 2006 to be similar to 2005's - about 31,000 to 32,000 units.
 
The writer is assistant vice-president, ERA Real Estate

Yahoo! Messenger with Voice. PC-to-Phone calls for ridiculously low rates.

// posted by Shajahan @ 11:06 AM


<< Home