New measures will increase stability of housing market: analysts

About 75% of Singapore households will qualify for grants under the new measures.

The new enhanced housing grants will result in the gradual bottoming and increased stability in the HDB resale market but may slightly pull down activity in the private market, analysts said.

The Housing Development Board (HDB) and the Ministry of National Development (MND) recently announced the enhanced housing grant as a replacement to the additional CPF housing grant and the special CPF housing grant. Household income has been raised to $14,000 monthly from $12,000 previously for new HDB built-to-order (BTO) and resale HDB homes. Furthermore, the household income limit for the purchase of new executive condominiums (EC) has also been raised to $16,000 monthly from $14,000 previously.

An estimated 75% of Singapore households (or more than 40,000 residential households) stands to qualify for public housing grants under the EHG and new income ceiling, noted DBS Equity Research. This, according to DBS, not just meets the MND’s goal of increasing affordability for new households to purchase HDB flats (BTO and resale) but may also lead to increased stability for Singapore property market--particularly the HDB resale market--in the medium term.

“The changes would result in a gradual bottoming and increased stability in the HDB resale market. In 2Q19, the property price index (PPI) for the HDB resale market dipped 0.2% QoQ vs 0.4% rise for properties outside central region (OCR). Over time, these new changes should arrest the decline in HDB resale prices as transactions pick up over time,” according to DBS analysts Derek and Rachel Tan.

Analysts agree that the new measures would most definitely boost demand for new HDB whilst the resale market will benefit from the grant. In particular, Krishna Guha of Jefferies Equity Research noted that these measures are geared to ease some pressures from the HDB resale market.

“We believe the measures are more targeted towards supporting the HDB resale market, which has seen some pressure lately. This is due to higher supply and the Government’s clarification that only a small proportion of flats are suitable for redevelopment, and the remainder are to be surrendered upon lease expiry,” noted Guha.

A shift away from the private market.

Similarly, Vitay Natarajan of the RHB bank said that the new measures are set to stabilise the resale prices as the pool of buyers widen. However, he warns that this may be slightly negative for the private property market.

“The measures are slightly negative for the private property market, as some first-time buyers may shift their attention to public housing post changes. Overall, however, we do not expect this shift in demand to be significant (less than 5%),” Natarajan stated.

Guha expressed similar concerns, saying that the increased confidence in the HDB market may shift volumes away from the private market. Despite this, he noted that private developers are likely to benefit from higher income ceiling for ECs. “In 2015, EC volumes almost doubled after the income ceiling was raised for EC from $12,000 to $14,000. Whilst 50% was sold, we expect a boost from the new measures,” Guha noted.

Meanwhile, DBS Equity Research expects ECs to benefit the most from the increased pool of buyers, projecting a rise in sales from existing EC developments. “In recent years, ECs have been one of the preferred housing options for Singaporean households which has resulted in robust bidding for such sites under the government land sales (GLS) programme,” the report read.

However, property prices will not climb steeply amidst the worsening macro-economic outlook, said Natarajan. Additionally, the wider selection of choices from higher supply will dampen demand, leading RHB to maintain their full-year price growth estimate of 0-2% and full-year sales volumes of between 9,000 to 10,500 units.

“The challenging market conditions mentioned above are likely to compel developers to focus more on volumes, and less on margins. As such, we expect margins to remain squeezed, at around 5- 15% vs 15-25% seen in 2010-2015,” he said.