According to BT yesterday, HDB prices could hit the affordability levels of 2008 in Q3 next year.
if the prices of Housing & Development Board (HDB) resale flats continue to drop at their current rate, they could hit the affordability levels of 2008 sometime in the third quarter of next year, according to HSR Research. And that may be the time when some of the existing cooling measures are eased, the firm said.
The affordability levels of 2008 were just before significant increases took place in 2009, according to an HSR report released on Friday. And for affordability to reach the 2008 level, the report said, HDB resale prices would need to fall by a further 6 per cent, while condo resale prices must come down by 9 per cent.
The report defined affordability as the ratio of average annual household income to the prices of HDB or private non-landed residential units, where the income projections are based on historical compounded annual growth rate (CAGR) of 5.6 per cent for HDB dwellers and 5.4 per cent for condo dwellers from 2005 to 2013.
These calculations are based on the perspective of a first-time Singapore buyer, where the impact of taxes and duties is minimal.
Citing the example of a typical 1,000-square-foot resale HDB flat, HSR Research said that it currently costs five times the average annual household income of HDB dwellers.
But if the affordability levels of 2008 were applied, an HDB resale flat would cost 4.4 times the average annual household income of HDB dwellers. Monthly mortgage payment will then take up only 19 per cent of average household income, which is similar to the 2008 level and lower than the existing 22 per cent.
A private resale condo of 1,000 square feet is now 4.9 times the average annual household income of apartment dwellers.
If condo prices were to fall a further 9 per cent, it will cost four times the average annual household income of condo dwellers and mortgage payment will drop from the current 19 per cent to 15 per cent. Prices of resale HDB flats and resale condos started to register a fall from 2013 to current levels and HSR Research said it expects resale condo prices to decline at a faster rate.
So far, resale HDB flat prices have fallen at a compound monthly rate of 0.6 per cent while resale condo prices have dropped by a rate of 0.4 per cent.
Based on its postulation, the report said demand for these types of properties is expected to increase, resulting in higher transaction volume and prices. “Higher income coupled with lower prices will mean that a lower proportion of income is needed to service mortgages. This means that residential property will become more affordable to more people, leading to increased demand,” the report said.
The report, which seeks to determine what price level would be considered reasonable to ease the cooling measures, follows a recent statement by National Development Minister Khaw Boon Wan that it is “premature” to relax the property cooling measures under existing market conditions.