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My HDB home: buy, hold or sell?

STATISTICS from the Housing and Development Board (HDB) are increasingly pointing to a stabilising resale market. For the whole of 2015, prices dipped marginally by 1.6 per cent, compared to the 4.6 per cent fall in 2014. In addition, the past three quarters have seen prices moving by less than 0.5 per cent. This increased price stability could be pointing to a new equilibrium, indicating that the market may have found its support level.

Perhaps, as testament to the price stability in the resale market, transaction volume in 2015 rebounded from the low in 2014 to 19,306 units. Hence, in today's market where property prices have begun to stabilise after declining for the past two years, should one buy, sell or hold a HDB flat? Currently, the HDB's Build-To-Order (BTO) programme is the only means of buying flats directly from HDB. Application rates vary widely between locations. In the most recent February sales exercise, five-room flats in the popular Bidadari area had a 14.2 application rate overall (ie there were 14 applicants for each five-room flat offered for sale).

In particular, application rate of second timers hit a whopping 103.5. In comparison, five-room flats in Bukit Batok had an application rate of only 1.5, which means that almost every applicant could get a flat. Hence, buying a BTO flat involves a certain element of chance, as a flat is not guaranteed for every applicant, especially in very popular locations.

BTO flats have remained a popular choice among first-time buyers, most of whom are young couples looking to buy their first property. On top of the various grants offered by the HDB to eligible buyers, BTO flats are sold at a discount to their comparable resale counterparts. This makes BTO flats a very affordable option for home buyers. To illustrate, a three-room HDB flat in Sengkang in the recent February BTO sales launch could be purchased with a monthly household income of S$2,500 with zero cash outlay, except for the down payment.

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Despite the merits of a BTO flat, its major drawback lies in its scarcity or non-availability in some of the more popular locations. As Singapore becomes increasingly more built up, there is less land left for new HDB projects within established HDB towns and estates. Hence, BTO projects might sometimes be situated in what some buyers presently consider to be far-flung locations. Also, at the time of application, BTO flats have yet to be constructed, which means a waiting time of three to five years for successful applicants before they can move into the flat.

The other option available is to buy from the HDB resale market. In the open market, flats for sale can be found in almost every location in Singapore, provided that the five-year minimum occupation period (MOP) has been met by the seller. The sheer number of flats up for sale means that every buyer would be able to find a home that meets his needs. Resale flats are also subject to less stringent purchase restrictions than BTO flats. For example, there is no monthly income ceiling to be met (unless the buyer is taking a loan from HDB or a housing grant from the government) and singles above the age of 35 are allowed to buy all types of flats. Housing grants are also available to eligible buyers of resale flats.

As practically all Singapore citizen households qualify for the recently introduced Proximity Housing Grant (PHG), we could see increasingly more buyers making use of this grant to buy resale HDB flats in order to be nearer to family members that matter.

For families looking to buy a flat, they can consider either a BTO flat or a resale one. Both are equally viable options and buyers should come to a decision after considering their finances and living needs. Timing wise, prices of resale flats are very stable now, with the latest HDB figures showing a 0.1 per cent uptick in prices for Q4 2015. As a result, more buyers have been turning to the resale market in their search for a home. It is unlikely that prices will continue to fall much further from current levels. Hence, now would actually be a good time to purchase a flat, especially if you are considering upgrading to a larger unit.

OPPORTUNE TIME

Homeowners looking to upgrade and switch to a new living environment will also find this an opportune time to do so.

Private developers, well aware of the constraints that the total debt servicing ratio (TDSR) places on buyers, have priced their projects accordingly. This has resulted in strong sales for some of the recent project launches such as The Wisteria and Wandervale EC (executive condominium).

When upgrading to a private property, existing HDB flat owners will have the option of either selling their flat or keeping it. Selling a flat will free up the capital that may be needed for the purchase of the new property. This reduces the amount of upfront cash payment and also the loan amount needed.

Assuming the price of a three-bedroom apartment at Kingsford Waterbay to be S$1 million and the selling price of a Hougang five-room flat to be the median price of S$490,000, a hypothetical family who wishes to upgrade to a three-bedroom apartment at Kingsford Waterbay would need to fork out the difference in selling prices, which is about S$500,000. In addition, this amount can be fully covered by a mortgage.

If a family has sufficient savings and assuming they have already paid up their HDB flat in full, they can opt to keep their current HDB flat while purchasing a private property. Using the same hypothetical scenario, the family would have to make a minimum upfront payment of S$50,000 in cash and another S$150,000 in cash or Central Provident Fund monies before taking a loan of S$800,000. While this might seem like a large sum of money, owners of multiple properties can rent out one of the properties to offset the monthly mortgage payments, which means that the owners will only have to fork out a marginal amount every month, or even none at all.

Faced with two choices, homeowners might wonder if now is a good time to sell, given that it is a down market. Indeed, prices have fallen since their peak in 2013. However, recent trends show that prices have stabilised. Any price appreciation in the short run is likely to be tepid, as the cooling measures and slowing economy keep a lid on purchasing power. Hence, selling a property and upgrading now might not end up being a bad decision, especially when many private properties are priced to sell.

  • The writers are respectively key executive officer and research analyst at ERA Realty Network Pte Ltd.
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