Why Bto Supply Not Curbs Key Cooling Hdb Resale Prices
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The steep rise in HDB resale flat prices, which have increased by more than 50% since 2Q2019, reveals a harsh reality – demand-side interventions can only do so much when the supply is unable to keep up with the housing needs.
Despite the implementation of several government measures aimed at curbing demand, such as tighter loan-to-value (LTV) ratios for HDB loans and a 15-month wait-out period for private property owners and former private property owners before they can purchase a resale flat, the impact has been limited and short-term. This is due to the fact that resale flats serve an essential housing need and buyers eventually return to the market once eligible, leading to continued price increases.
In contrast, policies that address the supply of HDB flats have a more lasting and effective impact. For example, when the government ramped up the launch of Build-To-Order (BTO) and Sale of Balance Flats (SBF) between FY2011 and FY2013, there was a slowdown in resale price growth. However, when the BTO supply was scaled back from FY2015 to FY2019, resale prices bottomed out as buyers turned to the resale market due to limited BTO supply.
The Covid-19 pandemic was a unique event that accelerated the demand for HDB flats due to construction delays and supply chain disruptions. This led to a surge in demand for resale flats, despite efforts to boost BTO supply. As a result, the government has stepped up the launch of new flats, which has helped to moderate the resale market heat.
While SBF flats are often completed or near-completion and should have a more immediate impact on resale prices, there is no clear correlation. This may be due to various factors such as limited flat availability and restrictions under the Ethnic Integration Policy (EIP). On the other hand, there is a stronger link between BTO bookings and resale prices, with higher BTO booking volumes corresponding to price moderation.
Based on historical trends, launching more than 21,000 BTO flats annually is needed to cool resale price growth. However, HDB has not consistently hit this target in recent years, and this may be a crucial factor in the continued rise of resale prices. Additionally, the release of flats that have just hit their Minimum Occupation Period (MOP) can also impact resale prices, with the strongest correlation occurring one to two years after the MOP is met.
In conclusion, the key takeaway is that supply matters more than demand-side curbs in managing HDB affordability and maintaining a stable resale market. To achieve this, HDB must build consistently and launch between 23,000 and 25,000 BTO flats annually. However, the government must also carefully consider the potential impact of the surge in MOP-flat supply on resale prices in the future.