Public resale market to remain strong despite HDB additions

NewsSeptember 17, 2008

HDB announced its plans today to offer 3,400 new flats from now till December 2008, bringing the total number of new flats for 2008 to 8,400. This is 40% higher than the 6,000 new flats offered in 2007, with over 30% of the units in Punggol.

This move, notes PropNex CEO Mohamed Ismail, will certainly ease pressure on the supply side, as demand for public housing has remained brisk for the first three quarters of 2008. However, he expects demand for resale housing to remain strong in the future. He also predicts the resale price index to grow by another 5% in the second half of 2008, as demand will still outstrip supply.

“Not only has the surplus supply of unsold flats dried up,” says Ismail, “but the upcoming Build-To-Order (BTO) and Design, Build And Sell (DBSS) projects will take about three years to be built. This may not be suitable for some who then have no option but to consider the resale market.

“A median Cash-Over-Valuation (COV) of $20,000 for 2Q08, however, may see many opting for the Build-To-Order (BTO) projects, so the additional units offered by HDB will be almost definitely be reassuring to the public.”

The fact that over 30% of the units offered in 2008 will be in Punggol is not that surprising, given the new developments slated for that area, in terms of transportation and facilities. However, Ismail notes that many new couples and young families would still opt for HDB resale flats so as to be near their parents in the older estates, and to take advantage of the CPF grants of up to $70,000. Furthermore, the new flats are perceived by many to be smaller in comparison to resale flats.

While HDB is also planning to start building 2,000 rental flats next year, these are reserved for those who meet their stringent criteria, such as a very low household income which makes buying a resale flat impossible. For these individuals, Ismail feels that it is a good move on the part of HDB to provide for their special needs.

For the rest of the HDB rental market, Ismail maintains that it makes more sense to buy a HDB flat, rather than to rent one.

“Take a 4-room flat in Ang Mo Kio,” he gives as an example. “At $321,000, with a loan of 80%, it works out to a loan of about $1,000 over 25 years. Renting a similar flat at $1,730 per month for the long-term would definitely not be practical given those numbers.”

In light of the US financial crisis, Ismail admits that some ripples will almost certainly be felt here in the property market. Buyers of high-end properties (properties sold over $1,000psf) and property investors may wait to see if there are any further fall-outs from this latest blow to the US economy. However, he maintains that the HDB market, and indeed the lower-end private property market (properties sold under $1,000psf), should see little to no effect.

In fact, Ismail does not expect any major shift in consumers’ purchasing from HDB to private property as there will always be a substantial price gap. In Jurong West and Bishan, for example, a 4-room resale HDB flat costs around $274,000 and $382,500 respectively. Private properties of similar or slightly larger square footage in those vicinities recently transacted at over $650,000 and $900,000 respectively.

The impact of construction costs is also already evident today, where constructions costs have about doubled over the last two years. This has translated to a price difference of about only 20% between brand new and resale flats.

An increasing number of PRs living here also reflects Singapore’s long-term stability, not only for the economy in general, but for the property market as well. It is because of our strong economy, political environment and social focus on families that Ismail expects the second half of 2008 for the property market to be stronger than the first half, as it has traditionally been in previous years.

“In fact, HDB’s greatest challenge,” opines Ismail, “is in continuing to ensure that the mass consumer market have affordable roofs over their heads. This may mean having to review certain policies such as reviewing the income ceiling for HDB flat applicants and perhaps even abolishing the resale levy.”

In conclusion, Ismail forecasts a slow recovery for the private property market and the continued strength of the HDB market.

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