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HDB resale market sees strong demand

While the price index of HDB resale flats has dipped, transaction volume has increased 6.8% in the first half.

MOST people would measure the health of the real estate market based on the direction of the price movement. However, there are other indicators, such as the transaction volume, that also shed light on market conditions.

The price index for Housing Development Board (HDB) resale flats had weakened since mid-2013 due to the cumulated effects of the market curbs implemented by the government. However, the rate of decline was gradual, measuring less than 1.8 per cent per annum in the past four years. Based on the latest available statistics, it had contracted by 0.2 per cent quarter-on-quarter or 0.7 per cent year-on-year in 2Q 2019.

One factor contributing to the decline in the prices of HDB resale flats was competition from the steady supply of relatively cheaper HDB Build-to-Order (BTO) flats released by the government. Recently, the government had moderated the supply of new HDB flats for sale. It announced that it would release 15,000 BTO flats this year, slightly lower than the 15,800 flats released in 2018.

5-room HDB flats fare better than the rest

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Although the perception among some market participants was that the resale prices of HDB flats had softened, not every HDB town and flat type recorded a decline in resale prices.

Generally, the median resale price growth of 5-room HDB flats fared better than other flat types across the various towns as they often recorded the lowest decline in median prices.

Nationwide, 5-room HDB resale flat was the only flat type that increased 0.4 per cent year-on-year (yoy) in resale price in 2Q 2019. This is primarily led by the 2.3 per cent yoy increase in the median price of 5-room resale flats in non-mature towns. While the median prices in mature towns decreased across all flat types compared to the same period last year, 5-room flats also had the lowest drop in median prices of -4.3 per cent yoy.

A possible reason was that the prices of the larger flats were supported by the buying demand from homeowners of enbloc sale projects who were buying replacement homes, especially the Housing and Urban Development Company (HUDC) developments that were sold in collective sales.

The growth rate of resale prices of 3-room HBD flats turned in the worst performance on a year-on-year basis in 2Q 2019. The median resale prices of 3-room flats decreased by 4.6 per cent yoy nationwide.

Furthermore, the median prices of resale flats in certain towns even increased while the HDB resale price index weakened.

Generally, the median resale prices of flats in non-mature towns performed better than those in mature towns.

In 2Q 2019, the median resale price of 4-room flats in Bukit Panjang enjoyed the highest increase of 8.7 per cent yoy, followed by 5-room flats in Hougang with a 6.5 per cent yoy growth. In addition, newer estates such as Punggol and Sengkang also observed an increase in median prices of resale flats in 2Q 2019 as compared to same period last year. All these four towns are non-mature towns.

Other than having newer HDB flats, the newer towns such as Punggol and Sengkang attract buyers due to the exciting future developments in those locations. For example, the future Punggol Digital District will be the first district with an integrated plan for a business park, a university and a vibrant community. The Punggol Digital District is also expected to create more than 28,000 exciting jobs in that location. Similarly, residents in Sengkang are expected to enjoy even more amenities with the new integrated development located next to the Buangkok MRT station.

In contrast, the median resale prices of HDB flats in some mature towns contracted in 2Q 2019. For example, the median resale prices of the three major types of flats, namely the 3-room, 4-room and 5-room HDB flats, in popular mature towns such as Ang Mo Kio, Bedok, Tampines and Toa Payoh decreased in the second quarter of 2019.

Steady increase in HDB resale volume

As the gradual price decline did not affect every type of HDB resale flats nationwide, it can be argued that the overall price trend is stabilising. As a result, an increasing number of homebuyers are eyeing HDB resale flats as they could take possession of the resale flats within weeks after the deals are sealed. Therefore, in the first half of this year, 11,111 resale HDB flats changed hands, a 6.8 per cent increase over the transaction volume in the corresponding period in 2018. By comparison, buyers of BTO flats may have to wait a few years for the new flats to be constructed.

Another contributing factor to the rise in HDB resale volume was the increase in the number of homeowners who were displaced from transacted enbloc sale projects near HDB estates. For example, some retirees who wished to keep a part of their enbloc sale proceeds for their retirement funds may choose to purchase affordable replacement homes such as HDB resale flats.

Healthy sign

The HDB resale price index is stabilising with a downward bias. However, there are still pockets of price growth. At the same time, the increase in HDB resale transactions is a healthy sign.

If the current buying momentum is sustained, the HDB resale volume could expand by 3 per cent to 5 per cent yoy, translating to an estimated 23,800 to 24,300 flats changing hands.

  • The writer is the head of research and consultancy at ERA Realty