Win-win scenario in HDB resale market

Housing Board flats house more than 80 per cent of Singapore’s population and, more often than not, are the first choice of housing for young families.

This group often asks: Build-To-Order (BTO) flats or resale flats – which is the better option?

It depends heavily on the buyers’ circumstances.

With stabilising resale prices and increased Central Provident Fund (CPF) Housing Grants, resale flats have lately become an increasingly attractive option.

Last year, resale flat prices dipped only 0.1 per cent. Over the same period, the number of resale transactions increased eight per cent to 20,813 units.

Evidently, resale flats are popular choices among buyers.

BIG PRICE DROPS UNLIKELY

There are several reasons why the number of buyers is on the rise.

Prices have fallen from their peak in 2013 and have been stable since mid-2015. It is unlikely that resale prices will register huge drops in the near future, as buying activity is picking up at current price levels.

Given the limited downside risk, buyers can be more confident.

Also, resale transactional information is available publicly. Buyers no longer need to be afraid of “overpaying” a premium.

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.

The Family Grant was $30,000, but has since been increased to $50,000 for first-timers buying a four-room or smaller resale flat, and $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 $110,000.

This is expected to swing more buyers to the resale market.

SHOULD I SELL MY FLAT NOW?

On the other hand, some sellers may be reluctant to put their unit on the market as prices are lower now. But current market conditions are still favourable for them.

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, especially if their purchase was a BTO flat.

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.

It is worth noting that the Mortgage Servicing Ratio 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.

With the increased grants, there will be more buyers looking to purchase resale flats. Selling may likely be an easier and faster process now.

But sellers should be cautioned against rashly increasing their asking prices in view of the higher grant amounts, especially if the change is not backed by transaction data.

NO PERFECT TIME

We are not expecting huge changes to the resale market. We are expecting a 10 per cent increase in resale volume this year over last year, of about 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, the HDB resale market is much less speculative.

Our advice to any prospective buyer or seller is to focus on need. There is no perfect or best timing to enter or exit the resale market.

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