Is the growing divergence in prices of resale public housing flats and private homes snuffing out the Singaporean dream of owning a condominium?

While price data might underscore such fears, market watchers note that there are many mitigating factors to keep the upgrading momentum from owners of Housing & Development Board (HDB) flats going, who sell their flats to move to private housing.

First, the truth be told, price indices do not tell the whole story.

The HDB resale landscape has been uneven, with larger flats in mature and sought-after estates such as Toa Payoh, Bishan, Ang Mo Kio, Bukit Merah, Geylang and Queenstown holding up in prices or even registering an increase in Q4 2017 from Q4 2012, based on median resale prices published on the HDB website.

Those who have owned an HDB flat for a while would still be sitting on paper gains from the uptrend since 2006. The current interest rate environment also remains conducive for borrowings.

Even for new HDB flats bought in 2012-2013 that just crossed the five-year minimum occupation period, owners are cushioned by the housing grants they enjoyed when they bought these built-to-order (BTO) flats.

The widening price chasm between HDB resale flats and mass-market condos does not spell the end of the road for all upgraders, though the marginal buyers who have to stretch financially for a mass-market condominium may defer upgrading plans.

Some might end up taking bigger loans and/or purchasing a cheaper mass-market condominium than originally planned.

The recovery in the private residential market has gathered pace since the price index published by the Urban Redevelopment Authority (URA) turned the corner in the third quarter last year, after close to four years of decline. The 3.1 per cent price jump in the first quarter, based on flash estimate, was the steepest rise after Q2 2010.

Going in the opposite direction, the HDB resale price index accelerated its decline with a 0.8 per cent fall in the first quarter this year, based on flash estimate, marking its worst showing in the past 12 quarters.

Clearly, if this trend were to continue or even if HDB resale prices were to recover in the upcoming quarters, the price gap between these two housing segments may widen if private home prices surge ahead on the back of developers’ bullish land bids.

HDB upgraders are a significant demand pool for private homes, especially mass-market condominiums. Caveats lodged suggest that buyers with HDB addresses – which include HDB upgraders as well as HDB dwellers who buy private homes for investment – account for some 35 per cent of private non-landed resales.

For new launches, the proportion is not discernible from available data. But one developer source tipped that HDB addressees typically make up about 70 per cent of new private non-landed sales in the suburban or Outside Central Region, some 50 per cent in the city-fringe or Rest of Central Region, and possibly 30 per cent in the Core Central Region.

Aspiring upgraders would still go for private homes in the range of S$1,100-1,200 per square foot (psf). But once new launches go beyond S$1,500 psf, they may switch to the relatively cheaper resale condominiums instead.

Others may turn to executive condominiums (ECs), but EC supply is currently insufficient.

So far, the higher prices at new property launches have proven to be of little deterrence to home buyers, as seen in their strong take-up rates.

Quantum-sensitive buyers are snapping up smaller private apartments, so developers are downsizing their units ever smaller. Developers are selling more compact-size units to keep in check the total capital outlay for buyers.

The private housing market is also seeing a demand influx from owners of properties sold in recent collective sales – estimated to have so far displaced some 6,000 households and minted new millionaires since 2016. And agents say most of them do not qualify for HDB resale units because they also own another private property.

Consultants differ on how long they expect the price divergence in HDB resale flats and private homes to last, with some market watchers expecting an inflexion in the HDB resale prices soon.

HDB resale prices typically lags private home prices in a market upturn. An uptick in the HDB resale price index may happen as soon as in the upcoming quarters.

Also sanguine about HDB resale prices in the coming quarters is National University of Singapore real estate professor Sing Tien Foo. He believes that the market – with its many moving parts – will adjust itself over time.

“Should the gap widen, HDB resale flats may become more attractive for those who have not made a choice on whether to buy a condo or a resale HDB,” he said.

However, this unhealthy development for the sandwiched class who are looking to upgrade may accentuate the risk of the government intervening to narrow the gap.

As an illustration, a 5-room HDB owner in Bukit Merah who wants to upgrade to a two or three-bedroom private condominium of 80-100 sq m in the same area would only have to fork out another S$780,000 one year ago. Now, he has to fork out another S$900,000.

Looking at the expansion of the existing HDB stock and continued rise in private home prices, the divergence is envisaged to widen with HDB resale prices likely to continue its downward trajectory for at least another two quarters.

The HDB will launch another 17,000 new flats for sale this year, comparable to the 17,584 flats launched last year. The sustained roll-out of the more affordable BTO flats has also capped recovery in HDB resale transactions, which rose only 6.1 per cent last year to 22,077 flats, while private residential transactions (excluding ECs) last year surged 53 per cent to 25,010 units.

Market watchers also reckon that the reminder from the National Development Minister that not all flats will be chosen for Selective En bloc Redevelopment Scheme (Sers), which pays a generous compensation to the flat owners, may have unwittingly fanned a mindset shift among some buyers.

In fact, some agents have been recommending prospective buyers to go straight for private condominiums instead of trying to upgrade from an HDB flat later on.

The prospect of getting a windfall from a collective sale is like a lottery draw that private home owners are entitled to, but not the HDB owners.

Adapted from: The Business Times, 19 April 2018