What happened in 2013 to cause HDB prices to plunge?
2013. The year in which we experienced a 10% drastic drop in HDB prices in Singapore. What happened in 2013, what is the impact on resale HDB flats during then and have we actually recovered from the shock today? Such a catastrophic situation for HDB prices to plunge affect our HDB homes and 70% of Singaporeans that live in them. It definitely sent shockwaves across the nation during then.
On 11 January 2013, a joint press release issued by the Ministry of Finance, Ministry of National Development, Monetary Authority of Singapore and Ministry of Trade & Industry states that the Mortgage Servicing Ratio (MSR) is being reduced.
The Mortgage Servicing Ratio determines how much loans a buyer can get for a HDB flat. The smaller the percentage the lower the loan a buyer can get. For loans from banks, it was lowered from 40% to 30%. For loans from HDB, it was lowered from 40% to 35%. What this suggests is that HDB buyers are not able to get as much loans as compared to before.
Together with the MSR reduction, Singapore Permanent Residents (PRs) who own a HDB flat will not be allowed to rent out the entire flat. On top of that, PRs who own a HDB flat must sell their flat within 6 months of purchasing a private property in Singapore. This rule is likely created to deter PRs from using HDB for rental income and then move on to stay in private housing, or perhaps do not even stay in Singapore.
After the announcement, the transaction volume did not immediately go down. In fact, it increased about 20.8% and the resale price also increased 0.5% from Q1 to Q2 of 2013.
Introduction of other measures to stabilize the HDB resale prices
On 27 August 2013, the government introduced two measures to further stabilize the HDB resale market. In my opinion, that was really the last nail in the coffin for HDB resale prices. After what happened that cause the HDB prices to plunge so much, the measures were much needed.
One, they are reducing the maximum loan term from 30 years to 25 years. This means that HDB buyers will need to pay a higher monthly loan repayment due to the shorter loan term. In addition, for HDB loans, the MSR is reduced from 35% to 30%. Like we mentioned previously, this means that HDB buyers will not be able to get as much loans from HDB. This rule affected more Singaporeans. Most Singaporeans take up a HDB loan when buying a HDB flat.
Two, they ruled that PR households to wait three years from the date of obtaining PR status, before they can buy a resale HDB flat. The demand of HDB resale flat, which was previously made up of a significant number of PR households, will be greatly reduced with the new measure. HDB resale flat is the only type of HDB that a PR household can buy as they cannot apply for a new flat.
It was hugely shocking as the measures’ take effect immediately on the day of the announcement at 5.30pm. There was no grace period given. This stranded many PR buyers that were in the middle of a deal.
After this announcement, the transaction volume immediately plunged to 13.4% and the resale price also sharply dropped by 0.9% from Q2 to Q3 of 2013. From Q2 2013, Prices continue to drop quarter-on-quarter until Q3 2015 before stabilizing. The total drop in price was about 11.6%. The median price of HDB flat in Q2 2013 is S$460,000, a 11.6% drop means that if you buy a HDB flat in mid 2013 for S$460,000 then by end 2015, your HDB flat will be worth S$53,360 lesser than what you paid for.
Effects of the measures in 2020
The impact of the 2013 HDB measures introduced is still being felt today, coupled with the economy slowdown in growth rate. The HDB resale prices have been falling consistently from Q3 2013 till today, with only 4 quarters registering quarter-on-quarter positive growth. However, the growth never exceeded 0.5%. The median price of HDB for the full year of 2019 is S$400,000.
Compared to the historic prices of HDB, only those buyers that have bought a HDB before year 2011 (with median price of S$418,000) will make a profit or break-even. This is not taking into account other costs such as housing loan interest and CPF accrued interest. That is why sellers of HDB flats often face a negative sale situation.
This means that the money received after they sell their unit is not enough to pay for the HDB loan or bank loan, even taking into consideration CPF. If they bought a resale HDB flat after 2011, or used huge portion of their CPF to pay for the HDB flat, the effects are felt especially acute.
Looking forward, as HDB flats are supposed to serve as a primary home for Singaporean citizens and also PRs, prices will be consistently monitored to be kept low in order to allow it to be affordable to the masses. In the last 4 – 5 years, prices have been stable for resale HDB flats.
In the short term, we foresee that there will not be seeing any significant increase in the price of resale HDB flat unless we experience an economy boom in Singapore that significantly bring up the income level of the masses.
MSR most likely will stay on although the government have recognised the effect of inflation and have since increased the income ceiling eligibility of new flats from S$12,000 to S$14,000. The new executive condominium income ceiling was also increased from $14,000 to $16,000 on 11 September 2019.
What’s next in it for you?
Looking at the measures that were implemented, we can see that government policy changes definitely play a big part in influencing the price of our HDB flats. In fact, government policy impact all type of properties and not just HDB.
As a home seller selling your home in order to upgrade or right size into another home because your current home is no longer suitable for your needs, do you know if you fall under the negative sales scenario? If you do, what can you do if you are still keen to sell the place? Will we see such a situation of HDB prices to plunge greatly again?
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But if you have an agent that can take you through the process carefully, you will be able to find a new residential unit that could serve as your home for a long time. That is where Home Quarters can help. Sit down with Home Quarters to go through the current price of your HDB and what you owe on loans and CPF.
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That’s it for this article! Stay safe everybody, and remember, call Home Quarters and start packing!
