A version of this article was originally published on FinanceGuru.
Considering taking a home loan in Singapore to buy a resale flat? Here’s what you need to know about the recent surge in resale transactions, so you can make an informed decision.
As it goes without saying, the Covid-19 pandemic has been harsh. Few industries were spared from the severe service disruptions that came as a result. In fact, it was so bad that Singapore’s economy contracted by 5.4% last year. And yet, Singapore’s public housing resale market stood tall, not only unscathed but also flourishing.
You might have caught wind of Singapore’s HDB resale price rising 5 percent year on year in 2020. The number of resale transactions in Singapore also rose by 4.4 percent year-on-year, increasing to 24,748 flats.
But what is it about Covid-19 that has led to a surge in resale transactions? Surely, it can’t just be a lucky coincidence.
What the numbers mean for resale HDBs
April year-on-year: Prices of resale flats in April have increased 10.8%
Homeowners might be downgrading from private houses to HDB homes during financial hardship
August 2020: Five-room flats in Ang Mo Kio’s Kebun Bahru Edge recorded an application rate of 10.3. A total of 2,240 applicants vied for UrbanVille at Woodlands
BTOs are oversubscribed and homeowners are turning to resale flats to reduce waiting time
BTO construction delays during Covid-19 mean an additional 1-2 years of construction
The long construction time is turning homeowners who need their homes soon towards resale flats
Buyers can get up to $160,000 in housing grants and CPF can be used for resale homes
The financial strain of purchasing resale homes has been reduced and more can afford it
Things to Know About the HDB Resale Spike to Guide Your Home Loan Singapore
This isn’t the first time HDB resale transactions have increased during a recession
Singapore has suffered 4 economic recessions over the past 30 years, in 1998, 2001, 2008, and most recently, in 2020.
Both in 2008 and 2020, the prices of HDB homes appreciated. In 2020, prices rose so much that the hike has bled into 2021, with April marketing the tenth consecutive month for the rise.
In April 2021 alone, there were 21 flats that transacted for over a million dollars.
There could be many possible reasons for this, especially with HDB homes being a basic necessity. Not to mention, HDB units are also the most affordable form of housing in Singapore. This means that private homeowners might actually be downgrading to HDB options if they were struck by financial hardship during COVID-19.
The prices of condominiums have also increased substantially, with condo resale prices increasing for the eighth straight month in April 2021. In fact, prices are expected to increase so much that they’re estimated to hit a ten-year high.
BTOs are oversubscribed
If you’re at the age where many of your friends are getting married and applying for a bank loan or an HDB loan, then you’ve probably heard the phrase “BTO” mentioned so many times that it’s practically a buzzword.
You also probably know which areas have got upcoming BTOs slated for balloting in months to come. Any slip-ups and you might lose your chance to ballot within the next batch.
The already dense housing demand isn’t helped by the ongoing pandemic. With the building of new BTO entries slowing down due to limitations, the demand for resale flats is seeing an increase. In the months following 2020’s Circuit Breaker alone, sales of HDB resale flats increased by 127.3%.
And that doesn’t even begin to explain the competition for balloting in more popular estates. In August 2020, five-room flats in Ang Mo Kio’s Kebun Bahru Edge recorded an application rate of 10.3, while a total of 2,240 applicants vied for UrbanVille at Woodlands. Similarly, the launch of BTO estate Dakota One was not only 14.8 times oversubscribed by first-timers, but also 106 times oversubscribed by second-timers for four room flats.
Between the already extensive wait times for BTOs, now exacerbated by the pandemic, many understandably prefer to just turn to resale flats in the hope of getting their homes sooner. This means they’ll also spend less time waiting for lady luck to lay her blessings upon their BTO applications.
Might as well get a bigger home if taking a Home Loan Singapore
While getting a BTO may be a dream of many young couples, they're also infamously small. With land constraints becoming an increasingly pressing issue, Singapore homes are consequently reducing in size.
And while most people might not mind the smaller space at first, the lack of space may be detrimental especially with the pandemic and as work-from-home regulations are enforced.
As homeowners take to their homes for work and study, the need for an additional room or two has become a greater one. Family members or in-laws who were once tolerable during the days of in-office working arrangements might now seem a little too close for comfort.
And so it's no surprise that many might have put their bank loan toward older resale flats for their larger, luxuriant sizing.
Construction delays of BTOs changing plans for those taking Home Loan Singapore
Due to the rampant spread of covid-19, many constructions projects were put on hold - including those of BTOs.
Apart from a shortage of manpower, supply chains across the world were also disrupted. This meant a delay to the already-long wait for the complete construction of BTOs, which typically takes between two to three years.
However, the bottleneck caused by Covid-19 means that BTOs will take between three to five years to complete construction. This could be a significant wait for many, who might much rather turn to resale flats which are ready to welcome buyers almost immediately, instead.
Government grant assistance to ease the financial strain, in addition to a Home Loan Singapore
The batch of housing grants unveiled in September 2019 is very much still in place, allowing eligible buyers to get up to a sizable $160,000 in grants for resale flats.
This is perhaps, what has caused the speed of sales in resale flats, which are selling like hotcakes! The resale volume in March and April 2021 hit 2,448 and 2,340 respectively.
In the past, people were also unable to pay for resale flats using an HDB loan or their CPF account.
However, this has since changed, particularly for older flats which might have a shorter lease remaining on them.
Buyers can also take a HDB home loan in Singapore without a 60-year-limit plastered upon it.
There are more flats entering the resale market that might make you consider taking a Home Loan Singapore
Flats in Singapore have a 5-year Minimum Occupation Period (MOP) before they can be rented or sold. There was a flurry of flats that ended their MOP in recent years, with 27,000 units hitting their MOP in 2019 and 26,000 hitting their MOP in 2020.
As we continue to traverse 2021, 26,000 flats will hit their MOP at the end of this year, and so will another 35,000 in 2022.
That’s not to say that all of these flats are going to go on sale. But some will, and have, causing an increase in resale flats’ prices and the number of resale flats being sold.
If you’re looking to take a mortgage loan in Singapore, keep these numbers in mind!
Protective schemes during Covid-19 mean buyers are more confident of servicing their Home Loan Singapore
Sure, the economic plummet and general trying times of Covid-19 may leave many potential home buyers feeling cautious and wary. But stimulus packages unveiled by the government to help tide the nation through Covid-19 may have helped breathe some confidence into dire times.
While it may not look like the stimulus packages directly affected people’s ability to tend to their mortgage loan in Singapore, reality is that the packages helped pad the effects of any income loss during Covid-19. Those with the luck of not encountering job loss or major hits to their income may have been better able to afford new resale homes. They might therefore have been less fearful of making large financial commitments.
Looking at dipping your toes into the HDB resale market? Make sure to get the right Home Loan in Singapore.
With hundreds of loans to choose, you may not even know where to begin looking. Over here at FinanceGuru, we’ve got access to all of them, from various financial institutions.
Our mortgage specialists can help trawl through numerous mortgage loans in Singapore and give you recommendations that are best suited to your specific needs. Besides, we’ll also be helping take a load of paperwork, legal woes, and loan submissions off your hands!
You’ll also have access to a FinanceGuru relationship manager, who’ll take the time to understand your desires, worries, and walk you through the mortgage life cycle.
Home loans don’t have to be difficult, and the prospect of buying an HDB resale home is getting increasingly attractive. Begin your journey with a non-obligatory assessment, and we’ll give you some of the best recommendations for your home loan in Singapore.
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