More HDB BTOs: Too Much Of A Good Thing?

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The decision to raise the release of new BTO units, at an average of more than 32,000 units per year until 2016, have some predicting a looming public housing oversupply. Should this be a cause for concern?

SINGAPORE, 25 FEBRUARY 2014 – The Singapore government has been determined to ensure that first-home buyers are able to realise their dream of procuring a HDB unit to call their own, at an affordable price. To a large extent, they have succeeded in doing so.

In an effort to address the issue, the government has been committed to constructing over 90,000 HDB BTOs till 2016. This injection of new supply is an increase of 50 percent – as compared to the number of units which were released for sale in the last three years. However, in spite of good intentions behind the announcement, there is a real risk of oversupply in the HDB BTO residential market as a consequence of the slow population growth of Singapore Citizens. Currently, the Singapore Citizen population increased at its slowest pace in nine years, reaching more than 3.3 million in 2013, up 0.65 percent from 3.29 million the year before.

If we were to plot the population growth rate against the proposed number of HDB BTOs planned to be built, we will see from the chart below that by 2016, there is a possibility that the supply of housing will outstrip the total number of Singapore Citizens as a whole. This slowdown in population growth could lead to higher vacancy rates, placing a strain on public resources.

Application rates from first-time buyers for new BTO flats taking a tumble – from 2.4 in January 2013 to 1.3 in November 2013 – suggest that demand itself is already slowly being rectified. Does this, coupled with more than 28,000 HDB units planned for completion in 2014, signal a real danger that the HDB market is heading for a supply glut? According to analysts, this scenario is unlikely to occur.

Getty Goh, Director of real estate research firm Ascendant Assets said, “Even though 28,000+ flats due to be completed in 2014 may seem like a large number, if we take a long term view, the demand for housing will be spread out – given the fact that the government is trying to increase the overall population figure to 6.9 million by 2030.”

Alan Cheong, Head of Research for Savills, added, “New BTO flats are likely to be almost all taken up in the next few years to cover the backlog of demand. Most of these will go towards newly-formed families; therefore the seemingly large number of BTO flats expected for completion in 2014 and the near future is not a worrying issue.”

Citing alternative measures the government can take to alleviate concerns of oversupply, Christine Li, Head of Research and Consultancy for Orange Tee mentioned, “The government can simply accelerate the Selective En-bloc Redevelopment Scheme (e-SERS) and demolish more flats in the event that there is a risk. As public housing is mainly for owner occupation, it comes with a Minimum Occupation Period (MOP) to prohibit its sale until the buyer occupies it over a certain number of years. The government can have the option to extend the MOP further if an oversupply is imminent,” she said.

Should We Be Worried?
The government will pay close attention to both the demand and supply of public housing – implementing strategies to tackle the delicate act of balancing the two. By virtue of their commitment towards building more BTOs, we have seen the government begun taking steps to address the short-term deficit of residential units over the course of the next few years.

In the same vein, should these additional units prove to be more than what the market needs, the government can always recalculate the total supply to provide or tweak a variety of HDB measures to stabilise the market. This is already evident from Minister Khaw Boon Wan’s recent mention of cutting back on the construction of larger, three or more bedroom HDB units by about 18 percent, in response to fewer applicants.

More For Singles In The City
With plans to reduce the supply of BTO units for newly married couples and families, the government looks set to ramp up the number of two-room flats in non-mature estates from previous estimates of 2,600 to 5,000 units in 2014. This will aim to re-distribute the allocation of resource from where demand is comparatively weaker (young families) towards a demographic with a higher number of applications – which will likely remain in the double digits in 2014.

Goh said: “This is a political decision made by the government to cater to another demographic of Singaporeans who wish to own a home. In the bigger scheme of things, this policy is not going to have any significant impact on the HDB market, as there are more than 900,000 HDB units in total and 2,500 units make up less than 0.5% of the overall HDB stock.

While singles could consider buying resale HDB units in the past, prices of resale flats have gone up significantly in the last few years; many singles are presently finding it a challenge to afford something from the resale market. Hence, allowing them to buy directly from HDB is a timely move as it addresses the housing aspirations of this specific group of people,” he quipped.

Li added: “The new ruling allowing singles to purchase two-room Build-to-Order (BTO) flats provides those who cannot afford a resale flat a chance to purchase a home. While the intention is to look after the needs of those who have been previously sidelined, the government might also want to strike a balance between providing singles with more housing and encouraging Singaporeans to start a family.”

*The above article is published from the recently launched PropertyGuru Market Outlook 2014 eBook which is downloadable for free and can be viewed exclusively at PropertyGuru.com.sg/propertyoutlook2014.