HDB supply: Too cool, too hot, or just right?.
It is a scenario that alarms Housing Board flat owners who see their home as an ever-appreciating asset - but which young people who are home-hunting might cheer: A vast overhang of flats for sale amid shrinking demand, and which pushes prices down.
A decade from now, as many as 8,000 more resale flats could flood the market each year, as ageing baby-boomer flat-owners die. Their children may inherit the flats, but as most Singaporeans already own their HDB flats and cannot own a second one under current rules, these offspring will have to sell the flats. Given that about 20,000 resale flats exchanged hands each year for the last three years, that figure of 8,000 means a 40 per cent increase in the annual supply of resale flats.
As if a potential supply overhang were not worry enough, many HDB flats are ageing, and this will likely dampen the prices of resale flats. By 2030, more than 400,000 of some one million HDB flats will be left with a lease of 59 years or less out of their 99-year lease periods. According to experts' calculations, the value of old flats starts to depreciate more sharply from 40 years of age, which in turn is likely to lead to lower prices.
There have been calls for policy initiatives to tackle this double whammy of a potential hike in the supply of resale HDB flats and a potential fall in prices as these flats age.
However, Mr Ignatius Lourdesamy, HDB's director for marketing and development, subsequently assured Singaporeans that the agency modifies its new-flat supply to ensure a steady stream. This includes taking into account the number of existing flats released into the resale market due to the demise of their owners. His comments came in a reply to The Straits Times Forum page on Monday.
He said the HDB "calibrates its supply of new flats carefully, not just to meet housing demand in the short term, but also with a view towards longer-term demographic and population trends".
He added that there are other measures, like financing rules and ownership conditions, that the HDB wields to keep the supply in check, and that it will monitor the housing market closely and review its policies when necessary.
So what are the measures the HDB can take to ensure a smooth supply stream?
TOO MANY, TOO FEW
It has been more than 20 years since Singaporeans last saw an excess supply of flats. After the Asian financial crisis in 1997, the authorities took about five years to sell 31,000 built units due to insufficient demand.
What followed was the Build-To-Order (BTO) scheme that was rolled out in 2002, where projects had to meet 70 per cent of demand before they could be built. In 2011, this was changed to 50 per cent. Previously, the board used a queue system where new flats in non-mature estates were sold to those in line for a new home.
After that move, the idea of having excess new HDB flats became unimaginable.
In fact, the reverse happened - so conservative did the HDB building programme become that less than a decade ago, there was a shortage of new HDB flats. Many home buyers turned to resale flats instead, and prices rose, putting them out of reach for many first-timers, especially flats in mature estates that tend to be pricier.
Since then, resale flat prices have stabilised and application rates for new flats have eased greatly.
From about 5,000 new flats launched in 2007, to a high of 25,000 new flats each year from 2011 to 2013, the supply situation dropped to a tamer 17,000 new units this year.
In fact, the HDB even rolled out a new Re-offer of Balance Flats scheme last August, to sell flats that did not find buyers through the BTO and subsequent Sale of Balance Flats exercises.
As more new flats are built, the demand for resale flats tends to cool too. Coupled with a host of cooling measures, including the reduction of the mortgage servicing ratio from 35 per cent to 30 per cent for HDB concessionary loans, resale flat prices have come down by about 17 per cent since 2013.
So the truth is that the HDB can adjust its building programme and tweak the number of new flats it builds to take into account the overall supply of HDB flats. As the HDB remains the biggest influencer of the public housing market in Singapore, the prospect of a large looming oversupply of HDB flats seems unlikely to materialise.
But since the supply of new flats will take some time to build - the average BTO will still take three to four years, despite a move to shorten the wait by a year for some flats - there may be some lag.
Hence, the HDB may have to use other levers, besides controlling the stock of new flats.
WAYS TO MANAGE SUPPLY
Here are some options it has to manage supply.
First, the HDB could purchase the flats at the prevailing resale value, and turn them into either public rental homes or refurbished units under the Sale of Balance Flats scheme, at prices that take into account the remaining years of lease.
With the HDB now the main valuer for resale flats, under a change that took effect on Jan 1, the agency would be in a position to calculate a fair price for flats with ageing leases.
The board might also consider selling these flats, which would presumably come in varying sizes, with flexible leases.
Flats on flexi-leases have proven popular with buyers. Two-room flats with shorter leases have been offered to buyers above 55 years of age. The HDB said last month that nine in 10 elderly folk who bought such two-room flexi flats purchased units with shorter leases of between 15 and 45 years.
Should the HDB implement such a change, one might see more elderly condominium-dwellers cashing out of their private properties to live in public housing flats.
The HDB could also expand its public rental stock and accommodate larger families in, say, three-or four-room flats. Currently, the biggest public rental flat is a two-room unit.
Another option is to let existing Singapore private property owners purchase HDB flats to live in.
For years, private property owners have lamented how HDB owners can go on to purchase private properties and still keep their HDB flats, but not the reverse.
If there is truly an excess of supply, the Housing Board could allow this group to purchase an HDB flat, provided they live in it for at least five years - which would be consistent with the Minimum Occupation Period existing BTO and resale owners must abide by.
To convince purists who believe that the HDB should serve only those who absolutely need public housing, perhaps those who own private homes should not be allowed access to first-timer grants such as the $50,000 Central Provident Fund Housing Grant for four-room flats or smaller.
Existing private property owners will, in any case, have to pay higher stamp duty of an additional 7 per cent if they buy an HDB flat, which would count as their second property.
While the average price of a private property is about $1.2 million, the median price for a four-room HDB flat last quarter ranged from $330,000 to $716,000, depending on the town.
Nevertheless, one must consider that having another layer of demand could have the opposite effect of what was intended, and send resale prices rocketing instead. Also, once this bar is lifted, it might be harder to unwind such a move, which could make future cycles even harder to moderate.
A third option could be to temporarily increase the potential pool of tenants for HDB flats, and absorb excess supply temporarily.
For example, it could permit more flats in an HDB neighbourhood to be rented out to foreigners than are allowed under current quotas on foreign tenants.
The HDB could also choose to act as landlord for flats rented out to foreigners, similar to the JTC Corporation's now-defunct Scheme for Housing of Foreign Talent.
While not an ideal situation - since the point of the quota is to prevent foreigner enclaves - it is a stop-gap measure, and one that the authorities can roll back relatively easily and quickly without too much political cost.
Fourth, the HDB could simply permit owners of inherited flats a longer period of time to dispose of their units. This will ensure a slower, smoother flow of resale flats into the market.
Whatever option the HDB considers, it will no doubt have to go hand-in-hand with tweaking the supply of new flats each year.
But perhaps it is worth noting that, inevitably, there will be periods of over-and under-supply.
As veteran developer and academic Steven Choo notes: "Somewhere in between, you're bound to have a no man's land, because it's hard to get things right."
But he notes that unless population parameters have changed drastically - he added that he did not think they have since the Population White Paper of 2013 - there will come an equilibrium after an initial shock.
"While we're within a broad framework of what was projected five years ago, I'm less alarmed," he said. "The market will eventually find a happy medium, and it's unlikely that prices will crash drastically."
Adapted from: The Straits Times, 22 March 2018