Supply surplus: More HDBs and EC units to be up for grabs

The government still targets 25k new HDB flats this year plus four new sites yielding almost 1,725 EC units.

According to CIMB, EC allocations will be raised by 6x while BTO flat allocations will increase by 3x.

Here's more from CIMB:

Watch headline volumes and land tenders
Primary sales in Feb rebounded strongly, from a low of 652 units in Jan to 1,872 (excluding ECs). Though glossed by a few differentiated projects such as  Watertown and The Hillier, we believe policy makers will be watching such headline numbers very closely. The government has rolled out a series of cooling measures in the last 2-3 years with limited effects on property volumes so far.

The implementation of an Additional Buyers’ Stamp Duty (ABSD) was widely expected to stem the exuberance. While secondary volumes are starting to come off, developers’ participation in Government Land Sale (GLS) tenders remains unabated. Combined with the availability of investment liquidity, this means that prices (S$ psf) could stay high. In its recent results briefing, CityDev’s chairman Mr Quek Leng Beng believes that more cooling measures are possible if developers continue to bid for land aggressively.

Consistent rollout of new measures
We believe the government will continue to flood the system with supply, particularly HDB and EC flats. The government is maintaining its target of 25k new HDB flats this year. It also recently released four new sites yielding 2,070 units, mostly ECs (1,725 units).

More administrative measures were recently unveiled to aid resident households in applying for ECs (Executive Condominiums) and BTO (Build-To-Order) units. EC allocations will be raised by 6x while BTO flat allocations will increase by 3x. Second-time applicants will get a better chance with the first-timer/second-timer split adjusted from 95/5 to 70/30.

Second-timers’ allocation of new flats in non-mature flats for BTOs will also be increased from 5% to 15%. Minister Khaw Boon Wan aims to cut second-timers’application rate from above 25x to single digits. We believe the wider options now provided in public housing could draw demand away from the private segment.

We expect immigration policies to remain tight and continue to evolve. The government recently reduced the foreign worker dependency ratio by 5% for the manufacturing (from 65%) and services sector (from 45%), another measured step to curb excessive foreign worker inflow.

Policy risks yet to recede
While the aim is not to cannibalise demand for private units totally, policy makers do want to provide more affordable housing options and prevent households from over-leveraging in the private segment. The series of measures has, to a small extent, put a lid on buyer exuberance though it hardly represents a policy victory, in our view. Given low interest rates, we believe the government will remain vigilant. Many developers have been creative by downsizing units for sale (to shoe-box sizes) while pushing up S$ psf prices to attract buyers with a tighter budget. We believe demand here is mainly investment-powered, an area that could increasingly draw policy makers’ attention and ire, in our view.