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.