More upside for the HDB resale market

The HDB released the public housing statistics for the first quarter of 2021 (1Q 2021) today.

The HDB resale market is heading towards bullish territory as prices rose for the fourth consecutive quarter since 2Q 2020. In 1Q 2021, HDB resale price index increased by 3% quarter-on-quarter (qoq) and 8.1% year-on-year (yoy), which was the highest annual growth rate since 1Q 2012 when resale prices increased by 9.6% yoy.

The expansion in HDB resale price index in 1Q 2021 was led by the growth in prices of HDB flats in mature estates. While the median transacted price of resale flats in mature estates grew 4.2% qoq to $500,000, the median price of flats in non-mature estates only increased 2.3% qoq to $450,000.

Among the different flat types, resale 5-room HDB flats enjoyed the highest quarterly price growth in 1Q 2021. In the first quarter of this year, the median transacted price of 5-room flats islandwide increased 4.2% qoq to $545,000. As more people work from home more often due to the Covid-19 pandemic, some might want more spacious living environment that could easily be converted into work space if needed. Hence, there were more demand for bigger resale flats.

Table 1: Median transacted prices of different HDB resale flat types

Source: HDB, ERA Research & Consultancy<

HDB transaction volume

The Chinese New Year festival is a traditional lull period for real estate activities. As a result, real estate transaction volume tends to be lower in the first three months of the year. Last year, the HDB resale transaction volume decreased 7.0% qoq drop in 1Q 2020. However, in the first quarter this year, there were only 0.8% fewer applications for HDB resale flats registered compared to 4Q 2020. The smaller decline in HDB resale volume in the first quarter of 2021 illustrated the healthy demand for public flats.

In addition, the HDB resale volume in 1Q 2021 was still 28.6% higher than the same period in 2020, which was before the Circuit Breaker last year. This shows that the HDB resale market has recovered from the impact of the Covid-19 pandemic.

One factor driving the growth of HDB resale transaction volume was the expected delay in construction of Build-to-Order (BTO) flats. With a longer waiting time for the new BTO flats, some homebuyers prefer to switch to the resale market instead.

HDB rental volume

The HDB rental market also seems to be recovering from the pandemic as rental volume jumped 26.0% from 8,472 leasing transactions in 4Q 2020 to 10,676 leasing transactions in 1Q 2021. The increase in leasing demand was partly contributed by some young families renting HDB flats while waiting for the completion of their new BTO flats, as well as more foreign talents and international students returning to Singapore.

Outlook

The number of HDB flats that reached the end of their 5-year MOP and could be sold in the resale market started to increase sharply in 2019. In 2021 and 2022, an additional 26,000 flats and 35,300 flats would reach the end of their 5-year MOP respectively. This is much higher than the annual average of 12,600 flats in the previous 5 years from 2014 to 2018. The rise in the number of newly eligible resale HDB flats would further increase the resale transaction volume.

Moreover, these flats are newer and could potentially fetch higher resale prices compared to nearby older flats, which could fuel additional upside pressure on HDB resale prices.

The expansionary effects of the influx of such younger flats on HDB resale prices and transaction volume will continue be felt at least for the next two years, or until the HDB could effectively bring the completion schedule of BTO flats back on the normal track.

The continuing rise in HDB resale prices would beg the question on whether the government would introduce any cooling measures on the HDB resale market. Any cooling measures on the HDB resale market, such as the introduction of higher taxes, stamp duties and tighter loan restrictions will be highly unpopular with HDB flat owners. A large majority of HDB flat owners has invested their CPF funds and hence, their retirement nest eggs in their HDB flats. Furthermore, the HDB flat is probably the single largest asset to many flat owners. Any government market intervention that would deflate the value of HDB flats would have an adverse effect on the retirement assets of a large number of ageing Singapore citizens.

Therefore, the most likely method that the government would use to cool the HDB resale market would be to increase the supply of BTO flats and to ensure these flats would be completed without undue delays.

While the HDB rental volume rebounded by 26% qoq in the last quarter, it is still 7.9% lower than the rental volume in 1Q 2020. With the vaccination programme on track to cover the adult population in Singapore by third quarter this year, more foreigners would return to Singapore and HDB rental market will be able to recover from the pandemic.

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