Residential Market - Pandemic-fuelled price increases

From the COVID-19 outbreak in migrant worker dormitories last year to disruptions in the supply chain for construction materials and restrictions on the entry of foreign labour, the ongoing pandemic has impacted the supply of both public and private housing. With demand remaining strong and outstripping supply, it is unsurprising that home prices have been hiking up throughout the pandemic period.

Year-on-year, flash estimates by HDB showed that resale flat prices have risen by 10.8% as at Q2 2021 while URA ‘s data showed that private home prices climbed by 7.3% over the same period.  The issue of rising home prices brings to bear a philosophical issue, wherein lies the need to find a balance between allowing free market forces to operate and government intervention to ensure housing remains affordable. In the Singapore context, the HDB market will be a priority concern because close to 80% of the population owned HDB flats.

What is pushing HDB resale prices higher?

In April, the Ministry of National Development (MND) warned that about 85% of BTO projects were about six to nine months behind schedule. These delays have helped sparked greater demand for resale flats among home buyers. At the same time, the strong pent-up demand in the private housing market also caused some buyers who could not afford the high prices of private housing to look for houses in the resale market. A third reason is a bumper crop of over 25,000 flats reaching the five-year Minimum Occupation Period (MOP) this year, making them eligible to be sold in the resale market.  Some of these home owners may sell their flats and look for new homes in the resale market or the private residential market.  These ‘younger’ flats, with longer leases and newer designs, also tend to fetch higher prices in the resale market.

Besides increased demand and rising prices, another issue that buyers are contending with is the cash-over-valuation (COV) component. In recent months, more buyers have chosen to match sellers' asking prices, which include a COV ranging from $20,000 to over $100,000, depending on location, size and condition of the flats.  COV has the tendency to accelerate price growth, because no matter what the valuation is, the COV would push up the price further and set “the floor price” for subsequent transactions in the same location. If left unchecked, this will affect affordability and price out some buyers.

Speaking during the Committee of Supply debate for his ministry in March this year, Minister for National Development Desmond Lee pointed to the need to keep flats affordable and to manage the lottery effect when sold in the resale market. For HDB flats in future developments such as the Greater Southern Waterfront, a new housing model would be introduced. Suggestions such as limiting the pool of resale buyers, reducing the tenure to less than 99 years, imposing a longer minimum occupation period and more had been raised and are currently being reviewed.