There are new cooling measures, property prices are falling, 99-year leases will run out, and everyone needs to calm down. These days, every piece of property news reads like someone having an anxiety attack. Pretty soon showflats will replace the complimentary coffee with paper bags for the sales staff to breathe into. No one seems to be looking at the silver lining in all this, one of which is the growing affordability of HDB resale flats:
What’s happening in the resale flat market?
In Q3 2018, HDB resale prices are down 0.2% quarter-on-quarter (i.e. vs. Q2 2018) and 1% year-on-year (vs. Q3 2017). This normally wouldn’t be too big a deal, but the quarter-on-quarter (q-o-q) dip came right after flat prices showed signs of bottoming out/finally creeping up again. In Q1, the prices nudged up 0.1% after more than two years of straight decline, briefly sparking hopes that the downtrend will finally reverse.
Now there are three possible reasons behind a continued downtrend:
One is the new cooling measures. Now we’re in the habit of blaming almost everything on cooling measures, from slowing foreign investment to low birth rates (and maybe we’ve gone a bit far, when a housing policy is accused of being a contraceptive) — but there is some truth to it, in the sense that bank loans have slightly tighter curbs.
The other reason is the growing worry about 99-year leases. This is a conversation that will grow more intense by the decade; and Singaporeans are starting to worry about the shorter leases on resale flats. We think this is a bigger factor on the downtrend, as it’s been in the news and weighing on people’s minds lately.
The third reason is that, when cooling measures kick in, property prices dip. Some prospective buyers expect that to happen, now that the measures have been announced. They may be putting a brake on their plans, and waiting to see if their prediction of lower prices in the near future will pan out. Which leads us to say:
Now may be a really good time for buyers to consider buying a HDB resale flat.
There are four main reasons we can think of:
- Resale flat prices are getting more affordable
- Grants were raised for first-time home buyers of resale flats last year
- The next BTO launch sites don’t look too amazing
- The next few ECs are looking a little bit pricey
Resale flat prices are getting more affordable
If you looked at past transaction prices of HDB resale flats before 2014, you’ll be shocked at how much more affordable they are now.
The combination of several cooling measures, along with HDB’s change in Cost-over-Valuation (COV) policy to one that hides the valuation until after you secure the Option to Purchase, have put an end to the days when HDB resale flats consistently fetched $10,000 to $30,000 over valuation. By 2016, around 80% of resale flats were sold with no COV. That trend is likely to continue, as Singaporeans have become more aware of the expiring-lease issue.
To give you a sense of how low resale prices have gotten, you can now get three-room flats in the Tanjong Pagar area for just $400,000. Or if you’re more interested in size than location, you can get a five-room resale flat for between $380,000 to $400,000.
These prices are about half that a mass market condo (around $1 million), and are comparable to some BTO flats despite having more central and/or accessible locations.
And, if you’re still thinking to wait and see until HDB resale prices drop even more, there’s little chance of that happening as property prices do not usually transact below valuation, except in exceptional circumstances such as an economic downturn. So, the best time to buy may be now.
Grants were raised for first-time home buyers of resale flats last year
As we’ve stated in the point above, resale flats can now vie with BTO counterparts in value for money; the price points are much closer, with the added advantage that resale tends to be in more developed locations. The argument is also that BTO prices are becoming too high.
For first-time home buyers, resale has even more of an edge due to government grants. In 2017, the CPF Family Grant for first-timer married couples/families buying resale was raised to $50,000 for four-room flats or smaller, and $40,000 for five-room or executive flats. There’s also the usual Additional Housing Grant (AHG) which can be up to $40,000, and enhanced Proximity Housing Grant of up to $30,000. Combined, the maximum grant a couple buyer can now get for resale now exceeds that of BTO flats.
[Recommended articles: Quick Guide to BTO, SBF and Resale HDB Grants for Couples and Quick Guide to BTO and Resale HDB Grants for Singles]
Look again at the prices we mentioned in our first point. Assuming you pick a five-room resale flat near your parents, the price point can fall to as low as $330,000; that’s even without the AHG.
Using a 25-year HDB loan, that comes to around $1,347 a month. You can qualify for that (assuming you have no other big debts) just with a monthly income of around $4,500. Or you can pay $2,000 a month, and pay off the entire five-room flat in just around 15 years.
The next BTO launch sites don’t look too amazing
We hate to say it, but we’ve seen the next batch of BTO launch sites in November 2018 and we’re less than impressed.
There’s one solid location that everyone will rush for, and that’s Tampines because it’s a mature estate. And we all know that the mature estate label is merely an excuse for HDB to slap a price premium on BTO flats. How else can 4-room BTO flats in Eunos cost nearly $600,000?
The other locations in the next launch are Sengkang, Sembawang, Yishun, and Tengah. Yes, Tengah, where you can take a photo of the area right now, and easily convince everyone it’s a picture of Singapore from 1952.
Given lower HDB resale prices, higher grants, the freedom to pick and choose any location, and ever rising BTO prices, it’s hard not to want to give BTOs a pass for now (unless, of course, you’re caught up in the worries of shorter leases). Also consider the implications of having to wait three years for your home, versus having a place to call your own almost immediately.
The next few ECs are looking a little bit pricey
If your income allows you to weigh HDB resale flats against executive condominiums but not mass-market condos, there’s good reason for you to favour HDB resale as well. We still haven’t gotten over the shock of Sumang Walk, and the prospect of having a million-dollar Executive Condominium (EC) in Punggol. A lot of this is coming from scarcity value – there aren’t many ECs coming up, and Sumang Walk is the only upcoming EC launch in 2019. Good luck with the queue and ballot.
If you look at our list of upcoming ECs, you’ll also notice that the ECs are rather pricey, or have undesirable location attributes. HDB resale is starting to look more and more like a sensible alternative, especially as a strategy to minimise your outlay on housing by focusing your cash on other investment vehicles to grow your money.
Speaking of outlay, there’s also an added factor to consider: mortgage. You can’t use an HDB Concessionary loan for an EC, you can only use a bank loan. And while bank loans are currently cheaper (around 1.8%), a series of planned interest rate hikes is underway in the United States, which will trigger rate rises around the world. This will eventually drive up mortgage repayments. Given that you need to look at least 10 or 15 years ahead if you’re buying a home, this is a real concern.
You also need to consider that the maximum bank loan is now 75% of your property value, down from 80%. That extra 5% means another $50,000 down payment, assuming a $1 million price tag. With a HDB loan, buying a resale flat will take a much smaller bite out of your CPF or bank account in at the start.
[Recommended article: Loan-to-value (LTV) limit: a Quick Guide for Property Buyers]
As to whether leasehold HDB flats are a store of value, that should be more an issue for property investors to ponder. For genuine home buyers looking for a roof over their heads, HDB resale currently represents an affordable alternative so long as you’re not treating it like a four-walled endowment plan.
Again, if you missed our earlier point, you can always spend less on your house by opting for HDB resale (versus an EC or condo), and investing the huge savings into an actual retirement/investment product, which can possibly generate enough returns for you to afford a second property on top of your resale flat somewhere down the road. This won’t happen if you lock yourself into a mortgage you can barely pay off, by shunning resale flats for a more expensive alternative at your current stage in life.
Is it a good time to buy a HDB resale flat? Voice your thoughts in the comments section or on our Facebook community page.
If you found this article helpful, 99.co recommends Chart of the Week: HDB Resale Prices in the East of Singapore and 3 questions first-time HDB resale flat buyers must answer
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