HDB property outlook (Singapore)

PropertyGuru Outlook Report 2016 | 2

HDB resale and EC markets: Setting the stage for recovery

In retrospect, the market for HDB resale flats and Executive Condos (ECs) re-ignited following a sustained period of healthy buying activity. With transaction volumes fairly optimistic and prices stabilising, there is much reason to believe more property seekers will be lured back in 2016.




In space constrained Singapore, balancing household budgets and owning a dream home has always been an aspiration. In the traditional Singaporean sense, the idea of home usually begins with purchasing a HDB (Housing Development Board; referring to a government-subsidised home for Singapore citizens) unit, regardless of whether it is a BTO (Built-to-Order) or resale. HDBs convey a sense of identity - the notion of independence and progression, acutely felt by many young couples and families who reside in them. However, in most cases, it is the cost of acquiring such an asset that is the biggest concern on their minds. It is within this context that sets the stage for how trends in the HDB resale market have evolved.

Cooling measures such as the capping of the Mortgage Servicing Ratio (MSR) at 30 percent contributed to the dampening of demand for resale HDB units by limiting the amount an individual can borrow. With restrictions placed on the means of acquiring capital, buyers are not able to over-stretch beyond what their income dictates, eventually causing them to either bide their time for a better offer in the market or manage their expectations and settle for a smaller, and cheaper, unit. This lead to an eventual slowdown in buying activity, and in turn, caused HDB prices to correct per quarter since mid-2013. TRANSACTIONS EXPERIENCING A MARGINAL RISE, PRICES REMAINING CONSTANT In 2015, we started to see what seems like a gradual reversal in the HDB resale market. There were signs of promise as overall sales began to pick up again with 19,015 units changing hands, a rise of 10 percent from 2014’s dismal 17,318 units – a historic low recorded in the last five years. Examining the data more closely, overall sales volumes have exhibited healthy growth with an average of 4700 units transacted on a quarter-on-quarter basis, with Q2 2015 registering a high of 5,286 units. This figure

is comparable to the numbers achieved during the property boom between 2012 and 2013, an indication that buyers are slowly getting accustomed to current conditions and re-entering the market. Another indication that the HDB resale market is slowly picking up is the plateauing of housing prices. Compared to a year ago, overall resale prices have corrected by a mere 1.6 per cent, a vast improvement from the 6.1 percent dip experienced in 2014. In fact, what is surprising is that in Q4 2015, the HDB resale index actually rose 0.2 percent quarter-on-quarter, a phenomenon which broke the pattern of consecutive quarter declines since before the cooling measures were implemented in Q2 2013. Despite these positive signs in recent months though, industry leaders are still expecting prices to remain on

Source: HDB, PropertyGuru Analytics



a downward trajectory at around the current rate or less until the end of the year in view of the persistent government cooling measures and large supply of new homes. LOCATION DOES INFLUENCE PROPERTY PRICES IN THE LONG RUN

While resale public housing prices did dip in overall, what is interesting is that this does not occur uniformly across the island. Flats in mature housing estates typically tend to be more resilient than those in non-mature ones, sometimes even bucking the trend completely.

Taking into account a year-on-year analysis, we can see that median prices of 4-room HDB flats in the top 5 performers’ category - Serangoon, Bukit Merah, Geylang, Kallang/Whampoa and Queenstown – have outperformed those in non-mature estates. This not only highlights the perennial popularity of these areas to property seekers due to their location, availability of existing amenities and/or proximity to a well-connected transportation network, it also shows that there is still latent demand for these properties despite the current downturn in the market. The median prices for four-room flats in Geylang, for example, shot up 15.3 percent in a one year period to its current level of $490,000. Similarly, the Kallang/Whampoa district took the second spot with a median price appreciation of 12.6 percent with resale units at an estimated $580,000 today. Sales data from 5-room HDB flats also point towards the same conclusion. Geylang still holds on to the top spot reflecting the biggest price appreciation of 1.7 percent from $590,000 to $600,000 when compared year-on-year. Meanwhile, other mature estates in the same category such as Toa Payoh, Bishan and Ang Mo Kio all registered a median price increase of between 0.1 – 0.5 percent.



RENTALS WITNESS HIGHER VOLUMES AT MODERATELY DECLINING PRICES

Judging from current market sentiments, pressure on the leasing market is not likely to ease as we move into 2016. While transaction volumes have seen encouraging signs from tenants, rents continue to be suppressed in 2015, a trend that was prevalent from the year before.

The number of transactions in 2015 is 13 percent more than the total recorded in 2014 - a record 41,109 HDB flats, with 5-room units proving to be the most popular across the board with an average 22 percent increase year-on-year. As for rent prices, there was a larger dip of 4 percent in 2015 compared to the year prior. The large fall in prices is largely attributed to the rapid rent declines seen in non-mature estates such as Bukit Panjang, Sengkang and Punggol. This might be attributed to the relatively new built-to-order (BTO) flats that are usually constructed within these estates. After the owners have fulfilled their Minimum

Source: HDB, PropertyGuru Analytics

Occupation Period (MOP) of five years, they can rent out the flats in the open market, thereby increasing supply and competition amongst the current pool of landlords, pushing prices down faster.



influence over the purchasing behaviour of prospective buyers, HDB upgraders have been prudent in their purchases.

This can be clearly seen in the year-on-year data collected for 4 and 5 room units. In the 4-room category, Bukit Panjang and Punggol are two of the worst performers in terms of the rate of median rental declines, experiencing a drop of 8 and 9 percent respectively. Similarly, leasing prices for 5-room flats saw a double digit drop of 11.6 percent from $2,150 to $1,900 in Bukit Panjang, making it the estate with the largest price depreciation across Singapore. EXECUTIVE CONDOS CAST INTO THE SPOTLIGHT ONCE AGAIN Aside from Singapore turning 50, there was much for those seeking to upgrade their property to cheer about during the Singapore Jubilee celebrations. It was at the National Day Rally that Prime Minister Lee announced the changes to be made to the household income ceiling for ECs, raising it from $12,000 to $14,000. This in turn allowed families whose household incomes were between $10,000 and $13,000 to now become eligible to apply for them.

Yet, despite the news, the EC market has quietened down significantly in 2015 compared to preceding years. While there were 30 percent more EC unit launches from seven projects within the year, sales volume has remained stagnant with a take-up rate at an estimated 65 percent. While these results are moderately better compared to 2014, demand has waned from the record highs of previous years. This is primarily due to declining HDB prices, the implementation of the MSR and the resale levy. The resale levy affects second-timer households and it is estimated that more than half of the EC demand pool fall within this category. As such, there was a significant impact on the volume of ECs that were sold. Furthermore, as TDSR and MSR still wields significant

Source: URA, PropertyGuru Analytics

PREDICTIONS FOR 2016 1. Transactions will gather more momentum with stable price corrections

Although the HDB resale market saw significant declines in transaction volume to average around 3,700 - 4,000 units per quarter in 2014, a resurgence in buyer interest has caused transaction volume to climb 10 percent in 2015. With the number of resale units inching up, the HDB market is expected to remain optimistic moving forward. This recovery in transactions will occur as buyers are tempted to return to the market after seeing that prices have come down sufficiently to accommodate their budget.



At the same time, a bumper crop of estimated 28,000 new BTOs are scheduled to be completed this year. Upgraders expecting to receive their new BTOs will have to sell their existing HDB flats within six months, pushing more supply into the market. As such, we predict sales volume will continue to exhibit a similar pattern of an average of 4,200 – 5,400 units sold within each quarter to bring the total volume for the year to be in the range of 18,000 – 20,000. Jack Chua, Chief Executive Officer of ERA Realty, believes that HDB resale transactions are set to see a resurgence in 2016 based on how the market reacted in 2015. “As far as HDB flats are concerned, prices have stabilised owing to the marginal drop of 1.8 percent in the first 9 months of last year. Buyers’ confidence in the resale market has also been revitalised, evident from the significant number of transaction deals made compared to 2014. If these conditions are carried through for this year, it is a likely scenario that we might see between a 5 to 10 percent increase in units being transacted for the whole year from last year’s figures.”

However, it is important to note that while current conditions may entice certain buyers, their objective is still to purchase properties close to market value. Price remains a major factor in influencing transactions, where even a slight difference in selling price (quoted by a seller of a resale flat) and valuation price (determined by an independent party) can determine whether the buyer chooses to purchase a unit or not. That said, there is still room for prices to moderate further. Going by the trends seen in 2015 where prices corrected by a marginal 1.6 percent, there is a possibility that the HDB resale price index may fluctuate in the range of -1.5 to +1.5 percent per quarter. This will contribute to the stabilization of the market and cause prices to only correct by a smaller degree of between 0.3 – 0.8 percent by the end of 2016.

WATCH VIDEO: Jack Chua, CEO of ERA Realty Network touches on the performance of the HDB resale and EC market in 2015.

Source: URA, PropertyGuru Analytics

https://www.youtube.com/watch?v=aALyppfXaPE



On the demand side, tenants of HDB flats come from all walks of life – they can be overseas nationals employed to work in Singapore on local employment terms, newly-married couples who are waiting for their BTOs to be completed, and Permanent Residents who have not yet fulfilled their three year bar to purchase a HDB flat from the resale market. As reported by the Ministry of Manpower (MOM), foreign worker number only grew by 8,000 in H1 2015, a marked drop of 40 percent year-on-year and the lowest yet since the global financial crisis in 2008 – 2009. This will ultimately sever demand for leasing - with fewer expatriates coming to our shores, it will minimise the number of tenants searching for homes to rent. With an estimated 28,000 new units scheduled to be completed, up from the 26,000 seen in 2015, there will be some young couples giving up their rented HDBs as they receive keys to their new BTO units this year.

On the supply side, with an estimated 23,000 new private condos due for completion in 2016, HDB upgraders may choose to move into their new condos and rent out their existing flats at the same time, thereby exacerbating the demand-supply imbalance for lease units. With greater variety of properties in the market for tenants to choose from, it will give them more bargaining power and it might now take more viewings before a lease can be secured. While growth in leasing demand is still expected, it is unlikely to be on par with the strong supply coming on stream, ensuring that the softening of HDB residential rental prices will last.

WATCH VIDEO: Wong Xian Yang, Senior Manager – Research and Consultancy, OrangeTee gives his forecast for the HDB resale market in 2016.

Wong Xian Yang, Senior Manager – Research & Consultancy at OrangeTee elaborates further, “HDB resale prices will not witness a robust recovery in 2016 due to three main factors: the rising interest rates, the dual loan regulations put in place by TDSR and MSR as well as the three year restrictions on Permanent Residents (PRs). With all these policies in place, it would be challenging for prices to experience a rebound. What is foreseeable would be prices stagnating with minor fluctuations along a narrow range, as can be seen in the early 2000s.” 2. Rents to be further lowered, more transaction activity on the horizon The HDB leasing market is set to become even tougher this year, with declining rental prices and moderate increase in volume.

There are 3 reasons for our prediction: forecasted slowdown in the influx of overseas nationals on employment, high inventory of BTOs and private projects to be completed in 2016, and a lukewarm resale HDB market.

https://www.youtube.com/watch?v=-dWB-iBtkek



Forecast for 2016 for HDB resale:

1. For sale market: n Transaction volume to remain flat year-on-year n Less than 1 percent change in prices n HDBs in mature estates are likely to see stable or even a rise in prices

2. For rental market: n Rental transaction volume to maintain n A 5-8 percent decline in rental prices

PropertyGuru Group is Asia’s leading online property portal group used by more than 11 million property buyers, viewing over 104 million property pages and generating over 500,000 enquiries for real estate developer and agent advertisers – every month – across Singapore, Malaysia, Indonesia and Thailand.

The Group has developed and launched 15 mobile applications in four countries and three languages. At the end of 2014, the Group recorded more than 2.5 million downloaded mobile apps, resulting in a slew of three MOBEX awards sweep. Headquartered in Singapore, PropertyGuru was founded in 2006 by two entrepreneurs with a vision to simplify the property search process and help buyers, sellers and investors make better property decisions faster. Taking advantage of Asia’s growing affluence, property demand and online explosion, the company is market leader in Singapore, Thailand and Indonesia. The Group received S$175million investment - the largest in the technology sector in Southeast Asia this year - to support its innovation, marketing and further expansion in the region.

The award winning company focuses heavily on innovation. PropertyGuru was also the first to integrate its website with social media, first to launch Singapore’s only dedicated property newspaper – read by more than 100,000 readers island-wide every month – and it has also developed a property events platform, with approximately 20 shows held annually across four countries, addressing 20,000 potential property buyers on the ground.

For more information about the local property market, visit propertyguru.com.sg/marketnews

About

PropertyGuru Pte. Ltd.51 Goldhill Plaza, #11-03/05, Singapore 308900Tel: (65) 6238-5971 | Fax: (65) 6534-9544

Steve Melhuish Co-Founder and Chief Executive Officer

Esther TohHead of Consumer Marketing

[email protected]

Adam RahmanEvents Marketing Manager

[email protected]

Chang Hui ChewContent Marketing [email protected]

Sue Ellen ManaloSenior [email protected]

Disclaimer: This report and other research materials may be found on our website at www.propertyguru.com.sg. Questions related to information herein should be directed to PropertyGuru.This document has been prepared by PropertyGuru for general information only. PropertyGuru makes no guarantees, representations or warranties of any kind, expressed or implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability.

Whilst facts have been rigorously checked, PropertyGuru does not take responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Any interested party should undertake their own inquiries as to the accuracy of the information.

PropertyGuru excludes unequivocally all inferred or implied terms, conditions and warranties arising out of this document and excludes all liability for loss and damages arising there from. This publication is the copyrighted property of PropertyGuru Pte. Ltd. © 2015. All rights reserved.

Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to PropertyGuru.

Credits

Real Estate

HDB property outlook (Singapore)