2014 has raised a few concerns with regards to the HDB resale market. After experiencing consecutive months of decline in prices and transactions, many have accepted the downward trend to be the ‘new normal’, with modest dips likely to occur in the next months.
Indeed, looking at current market conditions, there is a high probability that activity will stay muted. Prices too will remain impacted by a looming flood of new Build to Order (BTO) units and the unwavering influence property measures, such as a lower mortgage servicing ratio, shorter loan tenure and a minimum three-year waiting period for PRs wanting to buy HDB resale flats, has on access to capital.
Not all estates are equal
While the prices of resale flats have taken a tumble across the board, each HDB districts were affected differently with some experiencing a greater degree of decline as compared to the rest. Resale flat sellers in two districts in North-Eastern Singapore felt the most pain as a result of prices going south in both the 4 and 5 room unit category. Resale prices for 4 room flats in Sengkang have one of the highest rates of price depreciation at 9.2 percent, with a median valuation of $446,000 between Q1 – Q3 2014. 5-room unit prices performed marginally better, seeing an 8.3 percent fall from a median price of $535,167 to $491,000.
Similarly, prices for 4 room resale properties in Punggol followed a similar pattern with a 9 percent decline to arrive at a median price of $457,000 while 5 room units were down to a median of $555,333 from $562,500.
The fall in prices within these new estates can be attributed to the abundance of sellers within a certain demographic. Most homeowners within Sengkang and Punggol are young couples who could be looking to move elsewhere to upgrade in order to suit their families’ evolving needs, as such, creates a situation where supply of houses entering the resale market will exceed the demand into these areas.
Also, numerous launches of Build-To-Order (BTO) flats in Sengkang and Punggol could also play a key role in placing pressure on existing homeowners into selling their flats at a lower price than expected. This is likely as sellers will be inclined to choose to sell now, rather than run the risk of selling their flats at an even lower prices when new flats have been completed in the future.
Other areas that had seen a significant fall in price include mature estates such as Toa Payoh in addition to districts located in the North Western part of the island- Choa Chu Kang, Sembawang and the outskirts of Bukit Panjang.
Conversely, there are certain areas which have maintained strong demand by virtue of their favourable location, hence do not seem to suffer from significant price drops over time. “In the central areas of Queenstown such as Strathmore Avenue, Mei Ling Street and Stirling Road, the highest recorded prices for HDB units there would be in the $800,000 range. Today, one can purchase a resale unit for between $720,000 to $770,000, a smaller estimated dip of about 5 percent as compared to those in Sengkang and Punggol,” explained Evan Chung, Vice-President, DTZ Property Network.
A buyer’s market at the expense of sellers and upgraders
The situation from a seller’s perspective
It is without a doubt the tepid demand for resale flats has put pressure on sellers. Referring to those who have already got, or will soon get, their keys to newly completed BTO flats or ECs, it is mandatory for them to sell their existing HDB flats within six months of getting their new homes.
However, the situation compounded by the lack of buyers in the market. As a result, some have chosen to postpone collecting their keys to a later date or requested for an extension of the deadline to sell their flats in order to buy time to search for a suitable buyer for their unit.
Admittedly though, one reason why sellers are unable to find buyers, and why resale volumes remain low, is due to the mismatch of price expectations between sellers and buyers. On one hand, sellers are reluctant to cut prices, thinking that they can get a better price for their unit or simply because they find that prices offered are too low for their consideration. On the other, buyers have different price expectation, leveraging on the weakening market and increasing pool of supply to bargain for the best price.
“Sellers who need to dispose of their current HDBs may find that it will take longer than the six months they are given to find suitable buyers. Because of this, they have to make adjustments to their selling price. Some have done so, and this has significantly contributed to the dip in overall price in the resale market,” mentioned Chung.
Implications for upgraders
The austere outlook is also a bitter pill to swallow for upgraders – referring to those who currently own a place of residence and looking to purchase a bigger HDB flat or private property in the near future – especially so given the high probability prices will further soften in 2015.
Simply put, upgraders cannot get the price they need to upgrade in today’s market. It is common practice for upgraders to use a portion of profit from the sale of their existing HDB units to pay for the down payments needed to upgrade to a larger resale unit or private condo. However, with a shrinking pool of buyers and prices set to wane in the year ahead, it is indeed going to be a tough time for most to fulfil their aspirations.
This has in turn also affected sales for private property. “As a result of the reduction in the HDB resale volume, we find that the number of those intending to sell their HDB flats to upgrade to a private condos have fallen. This has diminished sales for private property as well, given that upgraders form 30 to 40 percent of condo buyers,” said Eugene Lim, Key Executive Office of ERA Realty.
Outlook for 2015: Resurgence of buying activity in the market
Property buyers are keeping a close watch on developments in the market so as to find an opportune time to re-enter the Singapore market. More buyers will likely come into the market when there is a perception that prices have fallen to a level low enough to meet their expectations.
Analysts believe that a rebound in the number of resale transactions may happen in 2015, given that prices are already showing signs of stabilising in recent months. Prices though are predicted to continue sliding at a slower pace.
“For the first half of 2015, there will still be the decline in prices. At this juncture, prices will have sufficiently reached a certain level where buyers are comfortable to relook at purchasing HDB resale units, thereby creating conditions for an upswing in the total number of transactions in overall,” Chung commented.
Echoing his sentiments, Lim mentioned, “Overall volume for HDB resale will probably see an increase in the region of 18,000 – 20,000 units with the return of more buyers into the market. On the other hand, continued correction of resale HDB prices will still occur. It will not be surprising to find that a further 5 to 6 percent fall will happen.”
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Adam Rahman, Senior Content Marketing Executive at PropertyGuru, edited this story. To contact him about this or other stories, email adam@propertyguru.com.sg
Source: PropertyGuru