Look Ahead 2023: Fewer BTO flats eligible for resale among property trends to watch; experts urge HDB upgraders to be cautious

TODAY's four-part Look Ahead series examines some hot-button issues that could affect Singaporeans in 2023. In this second instalment, we look at what the buoyant property market means for young homeowners here. 

SINGAPORE — First-time flat owners hoping to sell their homes this year will have less competition, with close to 50 per cent fewer flats completing their minimum occupation period in 2023 compared to last year. 

Housing and Development Board (HDB) flats have to be occupied by owners for a minimum duration of five years before they can be sold in the the resale market.

These potential sellers may still face a dilemma, though, over whether they should upgrade to bigger or private residences given the outlook for HDB resale flats and private residential prices, analysts said.  

They will also have to contend with rising bank interest rates. 

Property analysts are forecasting that HDB resale prices may rise between 5 and 10 per cent this year, while rising construction costs and inflation may likely drive up the prices for private homes by between 5 and 12 per cent.

On the dwindling supply of homes entering the resale market after the minimum occupation period, Ms Christine Sun from real estate agency OrangeTee & Tie said on Tuesday (Jan 3) that they are slated to drop significantly from 31,325 units in 2022 to 15,748 units in 2023.

And they will only continue to dip further to 13,093 units in 2024 and 8,234 units the year after, the senior vice-president of research and analytics added.

The analysts also predicted a softening of the rental market this year, especially in the city fringe and suburbs. 

HDB RESALE PRICES TO INCREASE AT A SLOWER PACE

This year may seem like an opportune time for homeowners to sell their property, given that property prices are still set to rise, but they should temper their expectations about how much they can expect to profit from the sale due to an expected slowdown in the rate of growth for resale HDB prices.

The analysts are forecasting last year’s record-high resale flat prices to continue to grow by between 5 and 10 per cent, with sales volume hitting around 27,000 to 35,000 units.

This is compared to last year's 10.3 per cent increase in prices based on Tuesday's HDB flash estimates. In comparison, there was a 12.7 per cent increase in 2021. 

Mr Nicholas Mak, head of research and consultancy at ERA Realty Network, said that the slower pace of growth in HDB resale flat prices was partly because of the increase in the supply of new Build-to-Order (BTO) flats and property cooling measures. 

HDB announced in 2021 that it would be launching up to 23,000 BTO flats each year in 2022 and 2023.

Last year, HDB exceeded its target when it launched a total of 23,184 BTO flats for sale.

Mr Mak said: "The price growth would still be driven by the supply-demand imbalance where the longer-than-usual completion of BTO flats would cause some homebuyers to acquire HDB resale flats." 

He added: “As the supply of resale flats is less elastic, the steady demand would drive prices higher in 2023.”

Separately, real estate firm PropNex said that the demand for HDB resale homes will be “driven by those with more pressing housing needs”, as well as families who do not wish to wait three to five years to get a BTO flat. This was from its residential property market outlook report for 2023, prepared by the firm’s analysts Wong Siew Ying and Jean Choo.

The demand may be there, but homeowners should rein in their expectations about the possibility of raking in a cool million from the sale of their HDB flats.

Mr Mak said that stringent cooling measures, such as tighter loan restrictions and the 15-month wait-out period imposed on private property downgraders, “may result in fewer million-dollar HDB transactions in the resale market”.

Analysts told TODAY that they do not anticipate the Government will introduce any new cooling measures to tackle rising HDB resale prices, since it had already rolled out fresh measures in September last year – with most of them targeted at the HDB market.

Ms Wong from PropNex said: “These measures may take a couple of quarters to work through the market and we think they will help to rein in price growth in 2023.

"In addition, we may see price resistance set in and buyers are expected to be more cautious in view of rising interest rates.”

HOME MORTGAGE RATES TO REMAIN ELEVATED

Aside from the possibility of a first-time HDB flat owner taking in lower profits from a sale, there is also the matter of rising mortgage rates, which could affect the financing of the property they will buy.

However, Ms Sun from OrangeTee & Tie said that young Singaporeans looking to buy a home should not be too adversely affected by the rising interest rates. The fixed home loan rates offered by many banks are around 4 per cent, while some floating loan rates have already exceeded 3.5 per cent.

To keep to one of the property cooling measures that is the total debt servicing ratio, which refers to the portion of a borrower’s gross monthly income that goes towards repaying monthly debts and loans now capped at 55 per cent, a stress-test interest rate of 4 per cent for residential properties is applied.

This means that applicants of property loans must have a total debt servicing ratio of 55 per cent or below as required, even if the interest rate increases to 4 per cent.

“Banks are using a higher benchmark rate than 4 per cent,” Ms Sun said. “Based on these rates, Singaporeans should not be overleveraged if they can pass the stress test.”

In any case, she advised that buyers be prudent and should not overleverage or be too much in debt when it comes to their property purchases.

Moreover, they should also have some financial buffer in case they encounter financial hardship and are not able to service their property loans in the short term, she said.

“In purchasing homes, they can consider buying a cheaper unit such as a smaller unit, lower-floor unit or not prime-facing unit if they don't want to overstretch their finances.”

That said, the second half of the year may be a good time for them to consider taking out a loan. 

Ms Wong and Ms Choo wrote in their report that although interest rates are likely to remain elevated, the pace of increase could slow and potentially plateau in the second half of 2023.

This is particularly so if central banks are able to bring inflation under control, they said.

FEWER DEALS FOR PRIVATE HOMES

Another hurdle for people seeking to upgrade to a new private property could be the possibility of developers raising the price tags of new residential launches, which Mr Mak attributes to rising development costs.

Such rising development costs, which includes construction and land costs, will in turn “dissuade developers from lowering the prices of their new residential launches”, he said. 

Ms Sun said that this gap between buyer-seller price expectations may cause fewer deals to be closed or they may take a longer time to seal.

This slowdown, however, may be mitigated as and when more private homes are ready for sale this year.

Ms Sun added that around 11,000 new homes may be launched for sale this year, over and above a “bumper crop” of more than 20,000 landed, non-landed, and executive condominiums that are expected to be completed.

And similar to resale HDB flats, the analysts said that they also expect prices of new private residential homes to climb, though at a slower pace of between 5 and 12 per cent, down from between 9 and 11 per cent in 2022.

RELIEF FOR RENTERS IN SOME AREAS

The coming year is likely to bring some relief for people living in rented property especially in the suburb and city fringe areas, the analysts said.

“There could be some relief in sight for HDB upgraders and Singaporeans who are renting as they wait for the completion of their new homes,” Ms Sun said.

Ms Wong and Ms Choo from PropNex said in their report that they expect some challenges for the leasing market, which include the potential impact of a global recession, slower business expansion, and retrenchments that could affect leasing demand.

“Deteriorating business outlook may also affect hiring and could crimp corporate housing budget for foreign expatriates,” they added.

Agreeing, Mr Mak from ERA Realty Network said that private housing rental rates are still expected to rise by more than 12 per cent in 2023, but slower than the 25 to 30 per cent growth in 2022.

However, Mr Mak pointed to one possible driver for the rental market this year —  the loosening of China’s zero-Covid policy.

“This may add more fuel to the rental market as more Chinese expatriates and foreign students come to Singapore,” he said.