SINGAPORE (June 11): Mr Yeo, whose wife gave birth to twins late last year, is in the market for a condominium within a 15-minute drive of his inlaws’ home. He thinks private property offers better long-term value compared with public housing. In fact, HDB flats in mature estates such as Bishan, Serangoon and Toa Payoh are near their peak valuations — which means there is limited appreciation potential. “It’s near the $1 million mark already. Most people won’t pay $1 million for an HDB flat,” he tells The Edge Singapore.

As it is, private property prices are now outpacing HDB prices. In 1Q2018, the private residential property price index has shot up 3.9% to 144.1, from 138.7 in the preceding quarter, according to statistics released by URA. This is the fourth consecutive quarter of increase.

On the other hand, the HDB resale price index, which tracks the overall price movement of the public residential market, fell 0.8% to 131.6 in 1Q2018, from 132.6 in the preceding quarter. The index has been on a downtrend since 2013; flash estimates from real estate portal SRX Property show that HDB resale prices in May were up marginally from April, but prices were still 2% lower than in the same month last year. This makes it harder for owners of HDB flats to upgrade to private property.

Yeo himself sold his HDB flat in Ang Mo Kio for $450,000 two months ago, incurring a loss of $20,000, he says. Fortunately, he is able to take his time to hunt for a bargain. Yeo and his family recently moved to his in-laws’ place in Serangoon Gardens. He says his in-laws have been an invaluable help in looking after the babies. Thus, he is willing to stay longer with them and wait three to four years for prices of resale condos to fall before buying a unit.

Not everyone can afford to wait, though. And, upgraders shopping for a private property in much-soughtafter neighbourhoods are facing stiff competition. Edwin Kheng, senior associate group director at OrangeTee & Tie, says potential private home buyers are typically professionals, managers, executives and technicians in their late 30s. They would usually have primary school-going children and, thus, want a location near good schools.

Property experts who spoke to The Edge Singapore say the current situation is not all that concerning at the moment. “At the current private- to-HDB resale price gap, HDB dwellers can still afford to upgrade to a similar or slightly smaller private property,” Alan Cheong, senior director of research and consultancy at Savills, says via email.

Much really depends on when and where the upgraders purchased their HDB flats. “Since most HDB dwellers looking to upgrade to private homes have either bought their flats directly from HDB or received some form of subsidies when they bought their resale HDB flats, the disposal of their flats should still [produce] a gain, the widening price gap notwithstanding,” says Tay Huey Ying, head of research and consultancy at JLL.

But will the price gap between HDB flats and private property continue widening? Why are prices of private residential property climbing while resale prices of HDB flats are falling? Are owners of HDB flats going to find it harder to upgrade to private property in the future?

Changing demand and supply The price boom in the private residential property market can be attributed to two factors. For one, pentup demand was created by potential buyers who had been waiting on the sidelines for prices to correct sharply. “But when that did not happen, this group lost patience and re-entered the market,” says Cheong.

At the same time, supply has been constricted. Tay says property developers took their time to launch units for sale, as they preferred to wait for higher prices in the market. Compounding the matter, property developers are running out of unsold inventory, as they did not actively replenish their landbanks during the downturn.

Over in the HDB resale market, Cheong says, HDB units that have a shorter lifespan on their lease are starting to be priced in. This usually means prices of these units are cheaper, which will drag down the HDB resale price index. Last year, Minister of National Development Lawrence Wong clarified that not all older flats were eligible for the selective en bloc redevelopment scheme. Wong was concerned that HDB resale buyers were paying exorbitant prices for older flats that may not necessarily undergo SERS.

Once HDB owners realise that their properties are no longer an investment but a consumption good, many will try to cross over to the private market to protect their wealth, Cheong warns. “It could be that in the past, the age of an HDB flat may have a mild negative effect on prices. However, recent market chatter concerning the treatment of decaying HDB flat leases may have inflamed that factor. This has taken on a much greater influence on HDB resale prices,” he says.

Does this mean that HDB resale prices will continue their downward spiral? Cheong does not think so. He expects HDB resale prices to be supported by beneficiaries of collective sales of private homes, who want to buy a replacement home from the public market. “Even though we may have fewer marriages, we may still see those who got a windfall from a collective sale downgrade to HDB resale flats, or those who are getting on in age move from private to public flats,” he says.

Cheong also believes there are signs that the HDB resale market is picking up in selected locations. These are places to which those who benefited from the collective sales of their private properties are downgrading, he says.

All these are, however, barring a decrease in permanent residents and an expanding build-to-order programme, especially in desirable locations near workplaces, says Cheong. This is also despite initiatives carried out to arrest the idea that HDB flats are a depreciating asset, he says.

Meanwhile, prices of private homes are expected to continue rising as demand increases. Tay of JLL says demand should rise in tandem with the “healthy” growth in the forming of new households. She expects launches of new units to increase significantly over the next 18 to 24 months, as property developers will be keen to market their new projects from sites acquired in 2017 and 1H2018.

Cheong says prices will be supported by cost push pressures, as developers were caught up in a bidding war when they started to replenish their landbanks in 2017 and 2018. He says they will attempt to pass on these costs to buyers. Cheong expects 13,000 to 15,000 private homes to be launched each year from 2018 to 2020. Of this, he expects about 90% of each year’s launch to be sold within a year.

Options for private property buyers

So, what can aspiring upgraders do? Cheong figures they have little choice but to dig deeper into their pockets. “Even if private properties rise further in value and HDB resale prices fall, staying put in the latter market [and thus] consigning themselves to a ‘lower wealth’ class will [drive them to] find ways and means to get the financial resources to buy a private property,” he says. “They will have to find the wherewithal, perhaps from their parents, to buy a private property to hedge against depreciation.”

JLL’s Tay suggests that some of these upgraders might turn to other options. “If new private homes are out of reach, HDB upgraders can consider turning to the executive condominium market or the private resale market for older properties in suburban areas, as prices for such properties have not risen as fast as the newer projects.”

One other possibility is the trend of homeownership being thrown in reverse. Even as private property is becoming less affordable and HDB flats are becoming a less certain investment, a new generation of Singaporeans are emerging with a very different set of priorities. Millennials are entering the workforce with a “you-only-live-once” and “gig economy” mindset, making it hard for them to commit to purchasing a home, says Ku Swee Yong, CEO of International Property Advisor. “Who would dare to commit to a home loan [when they do not have a permanent job]?” he says. 

This article appeared in Issue 834 (June 11) of The Edge Singapore.

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