SINGAPORE — It was nine years ago when Housing and Development Board (HDB) resale prices and private non-landed residential prices last diverged.

One has to go back even further, to 1999 for the last time when prices of private homes were heading north while HDB resale flats were getting cheaper — the exact scenario that the Singapore property market currently finds itself in.

But compared to the previous two rounds, the divergence this time is the largest and there is no sign of it abating.

The previous episodes were largely attributed to one segment rebounding faster than the other following an economic downturn (the Asian financial crisis in 1997 and 1998, and the global financial crisis in 2008).

While property experts believe there is also a lag effect this time round — with HDB resale prices expected to reverse the slide eventually — there are several disparate factors at play, independent of economic conditions.

The increase in housing grants, shorter waiting time for Build-To-Order (BTO) flats in certain housing estates, a strong supply of new public housing units, and the Government’s pronouncement that it will not renew the leases of HDB flats when they run out are some of the factors pushing down HDB resale prices.

On the other hand, the ongoing en bloc fever and high bidding for land by developers have caused private property prices to surge to record highs in recent months.

Flash estimates by the Urban Redevelopment Authority earlier this month showed that private home prices increased in the first quarter by 3.1 per cent, compared to the previous three months — the sharpest rise since 2010,

Meanwhile, HDB resale prices have fallen for six consecutive quarters: Flash data from the HDB showed that resale flat prices fell 0.8 per cent in the first quarter of this year from the previous quarter, a faster rate of decline compared to the 0.2 per cent drop seen in the last three months of 2017.

^{The divergence was seen in the last two property cycles, after the financial crisis in 1999 and 2008 where the property market saw stronger rebounds in private residential prices than in the HDB resale prices. Graph: URA, HDB, and Associate Professor Sing Tien Foo}

HDB RESALE MARKET: A PERFECT STORM WHICH WILL BLOW OVER

Historically, the price trends of HDB resale flats and private homes are usually strongly correlated, said Dr Lee Nai Jia, head of research at Edmund Tie & Company.

Nevertheless, ZACD Group executive director Nicholas Mak noted how the Government can influence the HDB market more than the private property segment which is largely subjected to market forces.

The analysts whom TODAY spoke to pointed to the Government’s recent policy measures and pronouncements on the factors behind the lacklustre HDB resale market.

Mr Alan Cheong, senior director at property research and consultancy Savills, cited the realisation among prospective buyers that not all old flats will be eligible for the Selective En bloc Redevelopment Scheme (Sers) as a factor.

Resale prices of HDB flats with less than 65 years’ lease remaining have dragged down the market, Dr Lee pointed out.

In a Facebook post in March last year, National Development Minister Lawrence Wong noted that only 4 per cent of HDB flats have been earmarked for Sers since its launch in 1995. “For the vast majority of HDB flats, the leases will eventually run out, and the flats will be returned to HDB, who will in turn have to surrender the land to the State,” he wrote.

As of December 2016, there were a total of about one million HDB flats in Singapore. Among these, about 7 per cent were at least 40 years old. Another 29 per cent were between 30 and 40 years old, HDB had previously said.

Singapore’s oldest estates include Queenstown, Tanjong Pagar and Bedok South. Most, if not all, the older HDB flats have at least 40 years of the 99-year lease remaining, and there is still a resale value, analysts had noted.

Associate Professor Sing Tien Foo of the National University of Singapore’s real estate department noted that both the HDB resale and private property markets are affected by lease tenures. He reiterated that prices of houses — be it in the HDB or private property market — should reflect the length of the remaining lease.

Mr Ong Teck Hui, national director of research and consultancy at JLL, said another reason for the current situation is the strong supply of new BTO flats which are more affordable and are drawing some demand away from the resale market.

Mr Mak said: “Although the HDB resale price index is still falling, the government is not planning to reduce the supply of BTO flats for 2018.” Moreover, some of the new BTO flats come with shorter waiting time and the Government has also introduced Re-offer of Balance (ROF) flats, he noted.

At the same time, the supply of resale flats could also be increasing as an indirect result of the Government’s significant ramp-up of BTO supply between 2011 and 2014. Given that the owners of some of these units have now met the five years minimum occupation period, many could be entering the resale market to sell off their flats, said Mr Colin Tan, director of research and consultancy at Suntec Real Estate Consultants.

ERA Realty key executive officer Eugene Lim reiterated that although HDB resale prices have declined for six consecutive quarters, the decreases are “rather marginal, (at) 2.3 per cent over the (entire) period”. “Compared to 2014, where the resale price index registered decreases at more than 1 per cent a quarter, the current situation is not worrying,” he said.

HDB RESALE PRICES TO REBOUND ‘SOON’

While it appears that a perfect storm has battered the HDB resale market, the analysts believe that prices will soon recover, and HDB flats remain a viable investment for Singaporeans’ retirement needs as part of the Government’s asset enhancement policy.

Mr Ong added: “The current divergence could continue until resale prices are attractive enough to draw more buyers, leading to price stability and an eventual turnaround.”

It is “a matter of time” before HDB resale prices rebound, said Mr Cheong. He pointed to recent data from SRX Property, which showed that resale prices of flats rose 0.8 per cent in March, compared to February which Chinese New Year fell on this year. Nevertheless, Mr Cheong felt that it was “a signal that the market has started to turn”.

He expects the impact of the ongoing en bloc fever — which is still going strong having lasted more than a year — to cascade down to the HDB resale market in time to come. Some sellers would be looking to unlock the value of their private property for greater cash flow and retirement needs, and they will turn to the HDB resale market to buy their next home.

“Sooner or later, given the number of money and households displaced, (the HDB resale market) is likely to return to earlier trends,” said Mr Cheong.

Reiterating that the HDB resale and private property markets tend to move very much in tandem, Mr Mak expects the HDB resale price to rebound after one to two more quarters.

Despite the impact of the diminishing leases of the older HDB flats on the public housing resale market, Prof Sing cautioned against any government intervention which “could have significant knock-on effects (that) may not be desirable for the markets”.

Less than three weeks after his initial Facebook to express his concern that some buyers are forking out high prices for older flats in anticipation of Sers, Mr Wong reiterated that HDB provide a “good store of asset value, so long as you plan ahead and make prudent housing decisions”.

Writing on Facebook in April last year, he noted that Singaporean couples benefit from “significant subsidies” when they buy a BTO or resale HDB flat for the first time. When they reach their senior years, they still have an asset which can be monetised for retirement: If they decide to sell their flat, they can receive a Silver Housing Bonus, on top of their sales proceeds. And should they decide to continue staying in the unit, they can apply for the Lease Buyback Scheme under which they can continue living in the flat for a few decades and sell the remaining years on the lease back to HDB.

On this issue, Prof Sing concurred that there are existing schemes to ensure HDB flats continue to be retirement nest eggs for Singaporeans.

For now, however, Mr Ong said the widening price gap between HDB resale units and private homes will make it difficult for Singaporeans to upgrade their homes. “Especially (for) those who are dependent on the sale proceeds of their HDB flats in purchasing a private property, they could end up taking a higher loan or buying a lower priced home than earlier planned,” he said.

Still, Prof Sing pointed out that market forces will come to pass. Expecting the demand for private housing to remain strong in the next one to two quarters, he said: “If private houses prices grow at a faster rate, the price gap between private and resale HDB could attract some buyers back into the resale markets.”

While the resale HDB prices will recover, they “may not grow at the same pace as in the private residential property market”, he stressed.

PRIVATE PROPERTY MARKET: FULL STEAM AHEAD

As experts had predicted earlier, the recovery of the private residential market has gone into full swing this year. In fact, the strength of the recovery has surpassed expectations, with analysts surprised by how much prices went up in the first quarter.

The performance in the first three months of the year prompted some analysts to revise their market forecast for non-landed private home prices to rise by up to 10 per cent this year — likely to be boosted by the growing momentum of transactions and by displaced homeowners from en-bloc sales who are looking for new homes.

On the back of positive economic growth numbers — barring no changes to the existing cooling measures put in place by the authorities — another factor for the projected increase are higher prices for new launches due to higher land and construction costs, they had said earlier.

Last week, preliminary estimates from SRX Property also showed that resale prices of condominiums and private apartments continued to rise to a new peak last month.

Overall, non-landed private residential resale prices rose by 1.5 per cent in March, compared to the previous month which had already seen price levels reach a record high. Year-on-year, prices last month went up by 8.5 per cent.

The private property market is so hot that Prof Sing warned of the prospect of overheating — barely a year after it made its way out of the doldrums lasting several years.

In the next one to two quarters, there is a need to watch the rising prices closely, Prof Sing said.