1) Genuine HDB upgraders to private
homes will have higher incentive to sell their HDB now. They can save 7%-10%
(for PRs) on stamp duties and possibly obtain the full 80% loan of the
valuation of private properties. (Though most HDB owners who buy 2nd
home for investments are likely to have fully paid off their HDB mortgage.)
2) PRs can no longer sublet their
HDB homes and they are likely to sell off their HDB in time to come as it is no
longer a viable investment vehicle for them. This creates a larger supply of
resale HDB in the market, creating downward price pressure.
3) The current market has fears of
increasing population with limited housing. The government has time and again
reassured the market with its ample supply of housing pipeline. Most HDBs
transacted at high prices are relatively old, some above 20 years old. Technically,
aging homes should depreciate accordingly as their lease shortens, however, due
to mismatched supply and demand by policies, it has appreciated, going against
economics principles. This phenomenon will revert to classical economics when
supply and demand reaches the equilibrium. Again, this point to lower HDB
prices in time to come.
4) MAS has set a Mortgage Servicing Ratio (MSR)
limit of 30% for loans granted by MAS-regulated financial institutions for the
purchase of HDB flats. This means that financing has been tightened on HDB
resale purchasers and they may not even qualify for the loan after paying hefty
COVs. For instance, a couple earning 8,000 a month on 30 years loan can qualify
a maximum of $534,000 loan and HDB valuation of $667,000. If they are above 35
years old, their loan tenure will be shortened, lowering their loan quantum.
Hence COV are likely to come down due to stricter financing rules for HDB.
Interest rates have to be assumed at 3.5% when calculating MSR. This policy
will hit large, pricey HDB homes.
5) Private
property owners who have bought new homes in 2011 onwards should not be expecting
much capital appreciation on their properties, since many developers are
offering lower prices now. Property as an investment vehicle will lose it shine
as rental starts to fall gradually and vacancies start to increase. A Singaporean
property owner who buys another 1M property will have to cough out almost 100k
in stamp duties. Assuming a 3% rental yield, the breakeven period is at least 3.5
years! A PR will have to cough out almost 130k in stamp duties, with breakeven
period of 4.5 years! This does not factor into the rental decline and vacancies
risk. Property tax, agent fees, income tax on rental income will continue to
eat into the returns of investors yield. Hence, attractiveness of private property
as an alternative investment will decline significantly. The correlation of
private (non landed) properties to HDB is 0.9. This means that decline in
private property prices will have a 90% impact on HDB.
Conclusion
With
massive supply of properties in the HDB and private market coming into the
market from this year to 2015, aspiring home investors should wait for cooling
measures to be lifted before entering the market to invest in properties.
Home
seekers should wait at least 6 months for reality to sink into their heads to
lower their asking prices before entering into the resale property market.
Overpriced new launches will see developers dangling more discounts,
stamp duty rebates, rental guarantee, furniture vouchers, tour packages and
other innovative packages to move sales. In this situation, the late bird will
get the best deals.
