According to HDB, a greater proportion of HDB flats are being sold within a year of reaching the Minimum Occupancy Period (MOP), compared to 2016. Over at Stacked, we note this coincides with a record number of flats reaching MOP in 2020 / 2021 (around 50,000 units). Among homeowners struggling with rising prices, this could be a source of concern; even if the impact is not immediate, we could feel it a little further down the road:
Market commentary like this is only useful if you can translate it into what it means for your own purchase: your entry price, holding period and exit options.
That’s where many buyers get stuck. General market insights rarely tell you whether a specific unit, at a specific price, is the right decision for your circumstances.
Over time, that’s also why we decided to work with agents who shared the same data-driven and advisory-led approach behind our editorial, consultants who could help readers think through decisions more objectively, rather than simply push transactions.
Today, the team has worked with more than 2,000 clients across over $5B in property transactions.
How many more flats are being sold just after MOP?
HDB told TODAY that, in 2016, around 6.5 per cent of flats, or 811 units, were sold within a year of reaching MOP.
By 2017, this had risen to 9.5 per cent (1,091 units). It continued to rise to:
- 11.8 per cent (1,392 units) in 2018
- 12.2 per cent in 2019 (2,736), and
- 13.4 per cent in 2020 (2,919 units)
Over 50,000 flats are expected to reach MOP in 2020/21. If even over a tenth of these are HDB upgraders (see below), this could represent a significant influx into the private homes sector.
While the number of flats sold within a year of MOP has doubled (since 2016), keep in mind the number of flats reaching MOP is also much higher.
For example, in 2016, only around 12,400+ flats reached MOP, and were available to the open market.
In 2020 however, around 21,700+flats reached MOP; an increase of around 74.8 per cent.
What does this mean for home buyers and sellers?
- A greater proportion of upgraders in the property market
- More interest in larger, resale condos to follow
- Better options amid the Covid-19 delays
- Rising resale flat costs
1. A greater proportion of upgraders in the property market
If someone sells as soon as a year after MOP, chances are it’s part of an asset progression strategy.
That is, they want to buy a cheap BTO flat first – hold on until it appreciates in value – then sell soon after MOP to get an upgrade. Do keep in mind that, by the time a BTO flat is sold, it’s typically nine to 10 years, and not five years (because the five-year MOP begins at key collection, not during the three-to-four-year construction time).
Another indicator that this is happening is demand in the Outside of Central Region (OCR). As we’ve mentioned in a prior article, many OCR condos have a quantum of around $1.2 million to $1.5 million.
This is the “sweet spot” for HDB upgraders; and it’s not a coincidence that – at the same time we see large numbers of MOP flats up for sale – the OCR has started to account for around 60 per cent of resale condo transactions.
This is not to say that everyone selling within a year of MOP is out to buy a condo. There are genuine homeowner reasons, such as moving to a different school, moving from a four-room to a five-room flat, etc.
It’s simply that, based on ground-floor observation and trends, many of these “new” resale flats are being used as stepping stones to condos.
2. More interest in larger, resale condos to follow
Following the above, we can predict that condo buyers are going to show more interest in older resale condos.
This is because HDB upgraders generally want at least as much space as their previous flat; it’s a rare buyer that’s happy to trade a 970 sq. ft. four-room flat for a 600 sq. ft. two-bedder condo.
You could say this runs contrary to a previous developer trend, which was to build smaller units in more desirable locations. You can, for instance, get a $1.3 million unit in a place as central as Bugis or Beach Road (Midtown Bay had some of these), but it would be as high as $3,000+ psf.
As such, we think HDB upgraders are more inclined toward older resale condos in the OCR. Older condos tend to be bigger, and this is where they can still find unit sizes of 1,000+ sq. ft., but at $1.5 million or below.
So despite the number of upgraders, we don’t really think there will be a big rush for CCR or RCR new launches like Canninghill Piers, The Atelier, etc. At least, not among the HDB upgrader crowd.
Rather, we’d keep an eye on older OCR condos, near MRT stations or major amenities; such as the many older condos around Tanah Merah MRT.
3. Better options amid the Covid-19 delays
There is an upside to buyers, even despite the rising prices.
There’s now a larger supply of resale flats available, in a good variety of locations. We’ve listed some of the likely ones in this article.
A flat that’s barely five-years old can be a good buy. Not only is it in better shape, the lease decay is negligible; even if you stay in it for another decade. And being built already, you won’t run the risk of six to nine-month construction delays, which have afflicted several BTO projects.
So for homebuyers who urgently need a place to live. The surge in available flats can be helpful; even if it’s accompanied by higher prices.
4. Rising resale flat costs
Five-year old flats tend to be sold at a premium, for reasons we stated in point 3. Besides the lack of lease decay, there’s the added issue that many of the sellers are upgraders.
This means they’ll make every effort to ensure they can close the price gap, between their flat and a private condo. In particular, they need to ensure they have five per cent of the condo price in cash, even after refunding their CPF, and discharging their outstanding flat loan.
(All bank home loans require an absolute minimum of five per cent cash down).
As obvious as it sounds, realtors we spoke to have surmised that – coupled with rising private condo prices – this has caused flat sellers to push for higher sums, and brought back Cash Over Valuation (COV).
This is a shift in preference among upgraders
Previously, HDB upgraders preferred to buy resale flats, and not BTO flats. This is because they don’t need to wait for construction, and can sell right after the five-year MOP.
(Because private home prices tend to rise faster than HDB prices, upgraders always worry that – for each year they wait – a private condo is priced further out of their reach).
However, more aspiring upgraders appear willing to start with BTO flats. Perhaps they need the nine to 10-year wait to save up more regardless, so there’s no rush to buy a resale unit. And of course, anyone buying a resale unit right now is buying high.
As such, we may see a situation where aspiring upgraders turn to the BTO market, hoping to “flip” their flat for a condo by around the next decade.
It’s a big reason why developers – who have long spotted the trend – may now act to accommodate it. This might mean more en-bloc attempts in OCR districts, where developers can cater to the price point of the now dominant HDB upgraders.
For more on the situation as it develops, follow us on Stacked. We’ll also provide in-depth reviews of new and resale properties alike, if you’re considering an upgrade in 2021.
Commentary like this is useful for understanding the broader market. The harder part is applying those ideas to a specific property, budget or decision you’re actually considering.
That’s often where a second opinion becomes valuable.
If you’d like to discuss how this applies to your own circumstances, you can reach out for a one-to-one consultation here.
And if you simply have a question or want to share a thought, feel free to write to us at stories@stackedhomes.com. We read every message.
Frequently asked questions
What does it mean that more HDB flats are being sold within a year of reaching MOP?
How has the number of flats reaching MOP changed over recent years?
What impact does the increase in flats sold after MOP have on the property market?
Are buyers now more interested in older resale condos or new launches?
How does the rise in resale flat prices affect homebuyers?
2 Comments
My neighbour just moves into a new 4-room BTO in Punggol Digital District. He sold his 4 room- BTO bought in 2007. Yes, BTO to BTO to maximise his 2 times BTO application. He sold his old BTO for more than $458k. He probably paid HDB for slightly above $200k. After a few months of construction delay, he finally ensconces in his new BTO.