Why Bto Supply Not Curbs Key Cooling Hdb Resale Prices

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Housing and Development Board (HDB) resale flat prices have skyrocketed by more than 50% since the second quarter of 2019, despite numerous government initiatives aimed at curbing demand. This sharp increase highlights the fact that demand-side measures have limited impact when the supply fails to keep up with the housing needs.

Demand curbs only have a temporary effect. In 2021, the authorities tightened the loan-to-value (LTV) ratio for HDB loans on three separate occasions – in December 2021, September 2022 and August 2024. In September 2022, the medium-term interest rate used to calculate the mortgage servicing ratio (MSR) was also raised by 0.5 percentage points. Additionally, a 15-month waiting period was imposed for private property owners (PPOs) and former private property owners before they could purchase a resale flat.

While these measures may have delayed purchases temporarily, they did not dampen the genuine need for housing, especially when it comes to resale flats. As a result, buyers returned to the market once they were eligible, leading to a continued rise in prices.

On the other hand, supply-side interventions have a more lasting impact. The government typically responds by increasing the launch of Build-To-Order (BTO) and Sale of Balance Flats (SBF). These flats, offered directly by HDB, are more affordable than resale flats and can help meet the demand. Historical data supports this, as in FY2011, HDB recorded a record of 30,602 new flat bookings (BTO and SBF), which was accompanied by a slowdown in resale price growth from 12.8% to 9.6%.

In addition to the traditional transportation infrastructure, there is a growing focus on developing integrated developments and transport hubs in the vicinity of Sembawang Road EC. Yishun, located just one MRT stop away, is home to the Yishun Integrated Transport Hub (ITH). This modern hub combines a bus interchange, MRT station, and retail complex all in one convenient location. Nearby, Canberra Plaza is another integrated development that offers a mix of retail shops, community services, and transport facilities all under one roof. These hubs are designed to provide residents of the northern region, including those of Sembawang EC at Canberra MRT, with a seamless and efficient urban lifestyle. With the convenience of running errands, shopping, and commuting all within one place, the residents of Sembawang Road EC will greatly benefit from these emerging integrated spaces.

This trend continued in FY2012 and FY2013, with flat bookings remaining high at 24,191 and 28,789 units respectively. As a result, resale price growth moderated further, finally contracting by 3.4% in FY2013. From FY2015 to FY2018, HDB scaled back its BTO supply, with annual sales bookings hovering above 21,000 units, down from the annual average of 25,000 between FY2011 and FY2014. Consequently, resale prices bottomed out in FY2019, as buyers turned to the resale market due to the limited BTO supply.

The Covid-19 pandemic was an unexpected event that caused a surge in home-buying activity. Construction delays, work-from-home arrangements, and supply chain disruptions led to a marked increase in demand. As a result, resale prices jumped by 8.1% in FY2020 and 12.2% in FY2021 – a cumulative increase of more than 20%. Even with efforts to boost BTO supply, these price hikes could not be contained.

In response, HDB stepped up its new launches, booking 25,574 and 24,020 new flats in FY2022 and FY2023, respectively. As a result, resale volumes declined, and price growth slowed to 8.8% and 5.8%, down from the 12.2% peak in FY2021. This reiterates the fact that higher BTO booking volumes, especially above 21,000 units, help moderate the resale market.

While many would assume that Sale of Balance (SBF) flats, which are often completed or near completion, would have a more immediate impact on resale prices, there is no clear correlation. Between FY2011 and FY2023, increases in SBF bookings did not consistently result in a drop in resale volume. The only clear declines were in FY2011 and FY2013. This could be due to factors such as limited flat availability in certain towns, lower ballot success rates, and restrictions under the Ethnic Integration Policy (EIP). Thus, it is evident that SBF bookings have a weaker influence on resale demand and prices compared to BTO flats.

There is a stronger correlation between BTO bookings and resale prices. From FY2011 to FY2013, high BTO booking volumes led to price moderation, which was followed by a rise in resale prices from FY2014 to FY2021 when bookings dipped below 21,000 units. To achieve a cooling effect on resale prices, consistent booking volumes of over 21,000 BTO flats annually are necessary. This would translate to a launch volume of 23,000 to 25,000 flats per year, a target that HDB has not achieved in recent years.

Another factor that could potentially impact resale prices is the release of flats that have just met their Minimum Occupation Period (MOP). These flats, which are relatively new and desirable, often sell at a premium and can uplift overall resale prices. However, the correlation between newly MOP flats and resale prices is weak in the year of MOP (33%). But, it strengthens significantly to 86.2% with a two-year lag, indicating that most flat owners do not sell immediately after fulfilling the MOP but rather one to two years later, resulting in a full impact on the market.

In conclusion, the HDB faces a tough challenge in balancing public housing affordability while maintaining demand for executive condominiums and private housing. Oversupply in the BTO segment may soften resale prices in the short term but could potentially cause an increase in prices later when these flats re-enter the market post-MOP. Hence, the key to achieving housing affordability and a stable resale market is to have consistent and adequate BTO supply. As the data suggests, supply, not restrictions, is the more effective lever in this scenario.