To understand the HDB market now, we need to first take a look at the history of the HDB market. During 1990s, the Singapore government was building 30,000 units per year. However during the Asian Financial Crisis (AFC) of 1997, the property market crashed and the demand for properties declined dramatically.
This resulted in a severe oversupply in the market during the early 2000s. In response, the government began to limit to building 10,000 units per year.
Build-to-Order (BTO) scheme was introduced, so that the construction of the flats would only proceed if 70% of the units were booked. On the other hand, the sudden influx of foreigners caused a rapid increase in the rental fees and the units’ “cash over valuation” (COV). As a result, from 2003 to 2011, the prices of new and resale HDB flats had doubled or more. Many newly married couples found it extremely difficult to own their flat due to high pricing and long waiting time. The unhappiness and frustration of Singaporeans cost the ruling party votes in the General Election of 2011, where they won by their lowest ever margin.
In response to the unhappiness in the HDB market, the Singapore government decided to curb the increasing prices by introducing various Cooling Measures:
[There are 2 ways to reduce prices, either reducing demand or increasing supply. The Singapore Government did BOTH]
The most important ones are below:
1. Removal of COV - 10 Mar 2014 2. Delinking BTO and HDB prices - 6 Feb 2013
3. Introduction of Mortgage Servicing Ratio (MSR) - 12 Jan 2013
And were the measures successful? Very successful in fact.
HDB Resale Prices have been falling
for the past 20 consecutive quarters.
If you log onto the HDB website, you will see that their first and main objective is "Providing affordable, quality homes"
What does "affordable"actually mean? It means HDB will manage the prices to make sure they are within the buying power of average Singaporeans.
According to the Ministry of Manpower (MOM), the average monthly salary of Singaporeans is $4,232 (as of 2017). Which means an average Singaporean family earns $8,464 every month.
So what is their affordability?
Based on 30% MSR limit, an average family can afford a home worth $634,211 max. However this is the MOST IDEAL scenario, taking into account that this family has the Best Credit Ratings (AA), No Credit Cards, No outstanding loans (eg Car loan, study loan..etc), and many more factors.
In actual fact, most families do not have such good credit ratings, probably have 2 or more credit cards and are serving an outstanding loan.
Which is why HDB is actively lowering the prices of HDB flats to keep prices affordable for the general public.
And one of the most effective way they have done so is by increasing the supply of BTO flats into the HDB market.
Increased BTO supply
There has been HIGH demand for BTO flats…. but what about HDB resale flats? Lets examine the data once again....
1Q 2018 sees the biggest Quarter-On-Quarter (q-o-q) decrease since 2014. "From the Business Times article (2 April 2018):Prices of resale government flats have dropped for six consecutive quarters, according to flash estimates from the Housing and Development Board (HDB) on Monday.HDB resale prices dropped 0.8 per cent in the first quarter of this year from the previous three months, an acceleration from the price decline of 0.2 per cent seen in the final quarter of 2017.
Last year, they fell 1.5 per cent due to a combination of factors, including the increase in housing grants, the shorter waiting time for Build-To-Order (BTO) flats in certain housing estates and the introduction of the Re-offer of Balance flats.
Remarks from National Development Minister Lawrence Wong indicating that not all HDB flats will be chosen for the Selective En bloc Redevelopment Scheme and that flats that reach the end of their lease will be returned to the state also likely depressed prices of older resale flats."
Will this trend continue?
From HDB point of view, the factors helping to reduce the resale prices are in line with its objectives and helping the future generation HDB owners:
1. Frequent BTO launches
2. Increased supply of BTO units
3. Increased grants available for BTO buyers
4. Shorter waiting time for BTOs
Do you think the HDB resale market still can compete with the BTO market? Prices of HDB resale units have been dropping consistently for the past 5 years.....
And if you are holding onto an older HDB, the risk is even greater!
If you are a HDB homeowner, please start planning for the future knowing your risks!
Do not wait for too long – especially if your flat is between 20 to 30 years old before you decide to handle this issue.
The longer you wait, the faster and more your HDB will start to depreciate. And this will only depress your potential selling price of the flat.
At TeoDuoProperty, we have helped our HDB owners to reevaluate their properties and turn it into a better asset through our data and charts.
Only with these numbers, we can make an objective assessment on what is the next best step to take.
Warm Regards, TeoDuoProperty
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