HDB resale market: On the path to recovery

Prices continue to fall but less sharply than in 2014, latest data shows.

by Adam Rahman

Following widespread electoral dissatisfaction over rapidly rising HDB resale prices, the government implemented  cooling measures to cool down prices. The HDB Resale Price Index (RPI) began its decline in Q2 2013 (refer to Chart 1), and continued to reflect reduced transaction volumes and prices each quarter since.

In the most recent numbers provided by HDB, the effect of the cooling measures continues to be felt. This year, prices continued to fall one percent quarter-onquarter (Q-o-Q) in Q1 2015, followed by a more gentle 0.4 percent dip in Q2 2015. However, this decline is less sharp than 2014’s, when prices fell nearly three percent over the same period. This suggests that prices are stabilizing, and some market watchers are predicting an eventual plateauing of HDB prices.

Ong Kah Seng, Director of R’ST Research, recalls that the initial months following the implementation of cooling measures — such as limiting loans by capping the Mortgage Servicing Ratio at 30 percent — buyers were unable to buy property beyond their lowered financial limits. This led to buyers either biding their time for better offers to come along, or lowering their expectations and going for smaller, cheaper units. The fall in transaction volumes led prices to correct downwards to their current point.

Sizes of flats matter

While prices did dip across the board, we saw different degrees of decline amongst the different flat types. In general, smaller flats saw larger price percentage declines compared to larger units over the same period of time. Prices of four-room flats fell 5.3 percent year-on-year, while larger five-room flats saw a smaller decline of 4.3 percent over the same period (see Chart 2). This is likely due to HDB upgraders (of which four-room flat owners are a larger proportion) selling their units, increasing market supply and further suppressing prices.

Owners of five-room or executive flats, in comparison, have less incentive to upgrade as they would be giving up their more spacious units at depressed market prices and still be looking at hefty premiums for condo units at equivalent sizes.

Transactions set to stage a comeback in a buyers’ market

With the slowdown in resale prices stabilizing, analysts are predicting that momentum will pick up in the latter half of 2015. Already, in H1 2015, 7.2 percent more resale units were sold compared to the same period last year, with levels expected to remain buoyant moving forward. This suggests that buyers have noticed prices coming down sufficiently to fit into their budgets, and have begun to return to the market.

This is an extremely price-sensitive segment however. Slight differences between the asking price of the owner selling the flat, and the valuation price, which is determined by an independent third party, could determine whether the transaction goes through or not.

Buyers are also savvy enough to realize that a lot of condominiums would be completing construction and owners would need to offload their current HDB flats before they can move into their new units. They would therefore hold out and negotiate for even lower prices, as they are in a stronger bargaining position.

Ong mentions that this is a common occurrence. “We have arrived at a point where buyers feel that prices have become more affordable and acceptable, so they are more willing to make a purchase. Looking at existing conditions, improved demand comes mainly from opportunistic buyers who will take advantage of the situation and not accede to high asking prices by sellers. In some cases, eradication of cash-over-valuation (COV) also helps to enhance liquidity, and they end up with more spare cash for renovations, especially so for older flats which require a major overhaul.”

Eugene Lim, Key Executive Officer of ERA Realty Network, agrees. “As far as HDB prices are concerned, prices have stopped increasing, spurring buyers’ confidence in the resale market. In fact, for the months of April and May, we noticed that the number of transacted units are one of the highest in recent times.” If these conditions were to sustain, Lim predicts that the market will see between 18,000 and 20,000 units being transacted in 2015, an improvement from the 17,000 flats in 2014 that exchanged hands.

A further price correction is inevitable

While there is general optimism that the volume of transactions will pick up, prices are not expected to rise. HDB resale prices are expected to remain flat for the remainder of 2015, with the chance of a one to three percent continued decline, bringing the total drop in resale flat prices to between three and five percent for 2015.

Mohamed Ismail, CEO of PropNex Realty, suggests that property prices will continue to moderate. “Looking at public housing for the second half of the year, we can anticipate prices will drop by 2.0
to 2.5 percent. Although we are seeing more buying activity in recent months, an immediate rebound is not likely to happen, even moving ahead into 2016.” The reason for this, Ismail suggests, is due to demand and supply. “With the volume of BTO flats that will be completed in 2015 and 2016, there will be a substantial number of second-timers who will have to sell their current flats within six months, adding to the current supply of resale flats already available.”