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• The HDB resale market received a new lease of life after the Government announced new policy changes in May.
• Resale transactions rose 29.8 per cent quarter-on-quarter (q-o-q) to 6,276 units in Q2 2019, the first-time sales volume had increased since Q3 2018.
• Resale price index slipped by a marginally slower pace of 0.2 per cent in the second quarter of this year.
• Demand for older flats surged two months after the recent policy changes. 4 and 5 room HDB flats above 30 years old saw a larger increase in sales volume.
• The number of approved applications for rent rose 4.8 per cent to 12,335 cases in Q2 2019.
Demand for older flats may revive after policy changes
The HDB resale market may have received a new lease of life after the Government announced new changes that allow property buyers greater flexibility in using their Central Provident Fund (CPF) and get bigger housing loans for their property purchases, so long as the property’s remaining lease covers the youngest buyer till the age of 95.
Based on the latest HDB public housing data, the volume of resale transactions surged 29.8 per cent in Q2 2019 to 6,276 units (Table 1). This is the first-time sales volume had increased since Q3 2018. For the first half of this year, 11,111 resale transactions were recorded, up 6.8 per cent from H1 2018 (Chart 1).
While the second quarter usually sees an uptick in sales activity and more units changing hands, resale transactions have also spiked 5.6 per cent year-on-year (y-o-y). This indicates that apart from a seasonal effect, the recent CPF changes may have been a major catalyst that has spurred buying demand last quarter.
The policy changes may revive demand for older flats in the coming months. Detailed analysis of HDB resale data downloaded from data.gov.sg (based on the latest update provided on July 8 2019) shows a significant surge in the number of older flats being sold two months after the policy implementation (See pages 3 and 4).
4 and 5 room flats above 30 years old saw a bigger surge in sales volume when compared to other flat types.
Due to the improving sentiment and revival of buying interest for older flats, HDB resale prices have declined at a marginally slower pace of 0.2 per cent in the second quarter of this year, when compared to the 0.3 per cent decline in the previous quarter. While this is a fourth consecutive quarterly decrease, prices have dipped less than one per cent over the past year indicating that the price decline has largely stabilized.
Policy change may be seeing early success as demand for older flats soars
Recent policy changes intended to spur demand for older flats may be seeing early success. Demand for older flats has seen a significant spike two months after the policy implementation (Chart 2). The positive market response is aligned with the Minister for National Development Lawrence Wong’s intention of improving the liquidity of the resale market and making it easier for people to buy and sell old flats.
Based on HDB resale data downloaded from data.gov.sg on 16 July 2019, resale transactions for older flats spiked two months after the policy changes. The number of resale transactions for flats that are 40 years old and above rose 40.0 per cent from 403 units in May-June 2018 to 564 units in May-June 2019. Sales of flats that are 30 years old but under 40 years have similarly risen 10.4 per cent to 1,219 units over the same period.
There were many concerns raised about the depreciating value of older flats in the earlier part of last year and many sellers were struggling to find a buyer. Therefore, the y-o-y increase is considered commendable and could signal that the recent policy changes may have started to take effect in helping to spur demand for older flats.
While sales volume of flats below 10 years old has also increased substantially over the same period, the increase may be attributed more to a surge in housing supply of flats reaching their five-year Minimum Occupation Period (MOP), rather than the policy changes.
In terms of market share, older flats that are 30 years old and above constitute 44.9 percent of total resale transactions in May-June 2019, up from the 40.6 percent recorded for May-June 2018 (Chart 3). Flats that are 40 years old and above have also seen an increase in market share from 10.8 per cent to 14.2 per cent over the same period. Conversely, flats that are 10 years old but under 30 years fell from 43.4 per cent to 35.8 per cent.
The demand shift may be attributed to the policy changes. The current regulation requires a property’s remaining lease to cover the youngest buyer till the age of 95 if he wants to utilise more CPF. If a buyer can meet the criteria, then he could purchase an older, larger unit or an older flat located in the mature estate with ample amenities using less cash.
Further analysis reveals that the policy changes may have benefited bigger and older flats. The number of resale transactions of 4 room flats that are 40 years old and above rose 53.5 per cent from May-Jun 2018 to May-Jun 2019, while 5 room flats increased 54.5 per cent over the same period (Chart 4 and Table 2). On the other hand, sales transactions of many younger flats that are above 10 years but under 30 years old dipped after the policy changes.
Mature estates like Bukit Batok, Geylang and Bedok saw the highest y-o-y increase in resale transactions for flats that are 30 years old and above in May-June this year (Table 2).
Our ground observation has been in tandem with the data findings. Sales inquiries for older flats have risen after the CPF changes. Some potential buyers who desire to live near their parents in mature estates may now be able to obtain a housing loan or fully utilise their CPF to buy an older flat in the vicinity under the new regulation. These buyers could have faced loan restrictions previously as the ability to obtain a loan is dependent on the age of the flat. Now the age of the buyer is taken to consideration together with the balance lease of the flat.
We have also observed more en-bloc owners purchasing older flats after collecting their sales proceeds. Some may regard older flats as affordable given their lower price quantum and large living spaces, and they get to keep a sizable amount of sales proceeds for retirement or reinvestment.
The HDB resale market may continue to benefit from the new policy changes. With more public education, concerns surrounding the lease decay issue may start focusing on a new narrative that emphasizes the importance of financial and retirement planning when a buyer makes a property purchase.
With a new perspective, older flats could see a revival in demand. More liquidity would also be unlocked in the market and sellers of older flats may be able to upgrade to private property.
Tampines, Bedok and Ang Mo Kio were the most popular towns in Q2 this year (Chart 5). The number of flats transacted in Tampines surged 64.5 per cent q-o-q from 203 units in Q1 2019 to 334 units in Q2 2019. The increase could be attributed to more flats reaching MOP this year, with some 1,300 units estimated to be eligible for resale by end of this year.
4 and 5 room flats across many towns saw price increases last quarter. (Table 3). 5 room flats at Kallang/ Whampoa achieved the highest price increase of 10.1 per cent q-o-q, followed by 4 room flats at Central Area (8.1 per cent) and Marine Parade (7.2 per cent).
The number of resale transactions rose across the board with Jurong West rising the most by 125 units or 51.7 per cent q-o-q. Sales transactions in Bukit Batok saw an increase of 86 units, followed by Sengkang (85 units) and Yishun (83 units) (Chart 6). The increase in transactions is within expectation as more flats are reaching MOP in these towns. For instance, more than 6,000 and 3,800 flats are estimated to reach MOP in Sengkang and Yishun respectively this year.
When compared to mature estates, 3 room flats in many towns saw price increases last quarter (Table 4). The increase could be due to a lack of supply of 3 room flats in non-mature estates.
Using SRX HDB rental index, rents rose for a third consecutive quarter by 0.5 per cent from March to June this year. On a y-o-y basis, rents rose 1.4 per cent in June (Chart 7). We may expect some downward pressure on rental prices in the coming months due to an increasing supply of flats reaching their MOP and being eligible for lease.
The number of approved applications to rent out HDB flats rose 4.8 per cent q-o-q and 2.6 y-o-y to 12,335 units in Q2 2019 (Chart 8). The increase in applications is within expectation as the second quarter of the year is usually a peak rental season.
Barring any unforeseen external market shocks, we expect demand for resale flats to remain resilient. While sales volume may continue to trend upwards in the coming months, a price recovery may not be as quick given the increasing supply of HDB resale flats.
With an influx of HDB flats reaching their MOP this year, more sellers maybe vying for buyers. Therefore, prices of flats may continue to face some downward pressure for selected locations. We maintain our price projection of between -1 and -2 per cent for the whole of this year (Table 5).
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