Sustainable BTO Flat Supply? Really, HDB?

I wonder if anyone is celebrating or cursing after reading that HDB will scale back its Built-to-Order (BTO) flats in 2014.

I hate to spoil the party for those celebrating but the headline by HDB is misleading.

HDB is scaling back by only a mere 3% or 800 less BTO flats from 2013 (read point 4). But they are reducing the number of 3- to 5-room BTO flats by 18% or 4,000 units and increasing the number of studio and 2-room BTO flats. The supply of 2-room BTO flats will almost double from 2,600 in 2013 to 5,000 in 2014.

Source: HDB

What is the likely impact?

1) HDB resale flat prices have fallen especially the bigger flats. Cash-over-valuation (COV) has been declining with more resale HDB flats sold at or below valuation. This applies especially to buyers of Executive Condominium (EC) units as they are required to dispose off their HDB flat. If HDB does nothing to arrest the fall, it can be a potential political time bomb for the next General Election in 2016. By pushing some of these demand back to the HDB resale market, it might arrest the slide.

2) There is still a sizeable number of singles in their 40s and 50s who want a place of their own. Since they do not own any flat at the moment, price movements in the HDB resale market will not affect them. Giving them this chance to own a HDB BTO flat might work in the favour of the Government.

3) HDB could be looking at opening up the 2-room BTO flats to divorcees with child(ren) in the later part of 2014. Hence there is a need to increase the supply.

4) Construction costs are going to stay elevated. With the Government cutting down on foreign workers, the huge number of homes to be constructed and MRT lines in the pipeline, resources are getting stretched. Even if a recession comes, construction prices will not come down immediately.

So I would say it is not a sustainable BTO flat supply. It is just the HDB trying to balance the HDB resale market.


Note:
HDB BTO flats is a form of wealth distribution by the State. The HDB market is divided into two segments: current owners and would-be owners. Current owners want prices to stay elevated. Would-be owners want prices to come down. It is difficult to satisfy both at the same time. Now that the HDB has satisfied the would-be owners, it is time to take care of current owners.

I did not comment on the impact on the private property market because the buyers (coming from the HDB market) would have already secured a loan. I would speculate half will rent out their HDB flats to pay for the private condominium monthly loan installments and the other half will stay in their HDB flats and rent out the studio or 2-bedder condominium/apartment unit to cover the monthly loan installments.

How Will the HDB Categorise DBSS Flats in the Resale Market?

The Design, Build and Sell Scheme (DBSS) was a concept introduced by the Housing and Development Board (HDB) in 2005. According to the HDB, the DBSS was introduced to the public housing market to offer greater choice and wider variety to meet the housing aspirations of higher income flat buyers for better design and finishes. Flats sold under the DBSS come with a 99-year lease and will be offered to buyers under similar HDB eligibility conditions like flats developed by the HDB. 

My stand from the day the HDB launched the concept of DBSS is that it is not worth buying simply because they are still HDB flats at the end of the day and they are priced much higher than any HDB flat in the same area.

The counter argument is that it is designed by a developer that builds private housing and it comes with supposedly "premium" finishes and design. Some DBSS projects even come with planter boxes, a concept found in condominiums. But please bear in mind that every unit in the DBSS project has the same design and finishes which is no different from a HDB premium flat unless the buyer re-designs the interior of the DBSS flat.

Will the HDB categorise a resale DBSS flat differently from a "normal" resale HDB flat then?

My answer is no. On a valuation basis and all things being equal, a 4-room resale DBSS flat will be valued on a similar basis as a 4-room resale HDB flat perhaps adjusting a bit for minor differences like the planter box or finishes or age or location. The HDB is not likely to create a separate category in their resale flat transactions search (http://services2.hdb.gov.sg/webapp/BB33RTIS/BB33PReslTrans.jsp) to identify a DBSS flat from a resale HDB flat. A DBSS flat is still a public flat afterall. 

But if the HDB does creates a separate category, it may go down the path for HUDC flats, with a possibility of privatising in the future. That will be an icing on the cake for such "premium" HDB flats should it happens. Buyers can pop the champagne when it happens (many years down the road).

The Premiere @ Tampines will be the litmus test being the first DBSS project to reach the minimum occupation period (MOP) end 2013.

Project Name	Location	Estimated Price Range at Launch	Estimated TOP Date	Estimated MOP Date
Pasir Ris One	Pasir Ris Central / Pasir Ris Drive 1	$389,000 to $760,000 ($556 to $672 psf)	May 2015	May 2020
Trivelis	Clementi Avenue 4	$375,000 to $770,000 ($580 to $728 psf)	March 2015	March 2020
Parkland Residences	Upper Serangoon Road	$359,000 to $738,000 ($498 to $612 psf)	February 2015	February 2020
Lake Vista @ Yuan Ching	Yuan Ching Road	$360,500 to $680,400 ($500 to $585 psf)	January 2015	January 2020
Belvia	Bedok Reservoir Crescent	$395,000 to $670,000 ($549 to $593 psf)	November 2014	November 2019
Centrale 8 @ Tampines	Tampines Avenue 5 / Tampines Central 8	$389,000 to $778,000 ($592 to $667 psf)	October 2014	October 2019
Adora Green	Yishun Avenue 11 / Yishun Central	$310,000 to $650,000 ($430 to $541 psf)	August 2014	August 2019
The Peak @ Toa Payoh	Lorong 1A Toa Payoh	$355,000 to $722,000 ($471 to $573 psf)	August 2012	August 2017
Parc Lumiere @ Simei	Simei Road	$378,000 to $575,000 ($374 to $482 psf)	May 2012	May 2017
Natura Loft @ Bishan	Bishan Street 24	$490,000 to $739,000 ($479 to $572 psf)	September 2011	September 2016
Park Central @ AMK	Ang Mo Kio Street 52	$433,000 to $689,000 ($447 to $534 psf)	August 2011	August 2016
City View @ Boon Keng	Boon Keng Road	$349,000 to $727,000 ($477 to $568 psf)	January 2011	January 2016
The Premiere @ Tampines	Tampines Avenue 6	$138,000 to $450,000 ($256 to $367 psf)	December 2008	December 2013

Source: Real Property Advisory Singapore