Budget 2023’s measures should alleviate some concerns of young families getting their first homes, but may drive up resale prices.
SINGAPORE: First-time homebuyers in Singapore are set to benefit from Budget 2023, with the government boosting housing grants to help them secure homes. However, property analysts caution that these new measures may also lead to increased demand in the HDB resale market.
Finance Minister Lawrence Wong announced on February 14 that the Central Provident Fund (CPF) Housing Grant for resale flat buyers would be raised by S$30,000 to S$80,000 for first-timer families purchasing a four-room or smaller resale flat. The grant for first-timer families buying a five-room or larger resale flat will increase by S$10,000 to S$50,000. First-timer singles will also benefit, receiving up to S$40,000 for smaller resale flats and S$25,000 for larger ones.
Together with other housing grants, first-time families with a household monthly income of less than S$1,500 could receive up to S$190,000 to buy a resale flat. In addition, young first-time buyers with children will receive additional chances in the Build-to-Order (BTO) flat application ballots.
Support for First-Time Homebuyers
Professor Qian Wenlan, Director of the National University of Singapore’s Institute of Real Estate and Urban Studies, welcomed the increased housing support. “Given the increasing resale prices and the delays in housing supply due to the pandemic, this will help reduce the cost of homeownership for those less financially prepared and meet the needs of those requiring homes urgently,” she said.
Lee Sze Teck, Senior Director of Research at Huttons, said the two-pronged approach of increased grants for resale flat buyers and more ballot chances for BTO flats should ease concerns for young families struggling to find their first homes. “Some first-time buyers may need a flat urgently and can’t wait for a BTO flat to be completed in a few years,” said Mr. Lee. “However, the rising resale prices in the last two years may put these flats out of reach, so the increased grants will help offset the price increase, particularly for lower-income families.”
Impact on the Resale Market
Mr. Ismail Gafoor, CEO of PropNex Realty, noted that the HDB resale price index rose by almost 31% between Q1 2020 and Q4 2022. He believes the increase in the CPF Housing Grant will make resale flats more affordable by reducing down payments and the loan amounts required.
The increased grants, particularly for two-room to four-room flats, could encourage families to “right-size” their homes, which may help ease demand for larger flats. However, analysts also predict that the increase in grants could shift some demand to the resale market, further reducing available supply for BTO flats. This could result in a rise in resale prices.
Mr. Lee expects the HDB resale market’s transaction volume to rise to between 26,000 and 28,000, up from earlier projections of 24,000 to 26,000. He also expects resale prices to increase by 8% to 10%, up from his previous forecast of 5%.
Balancing Supply and Demand
The shift in demand to the resale market could help address some of the supply imbalances in the BTO market. “With reduced BTO demand and increased BTO supply, the chances for first-time buyers to secure a BTO flat may improve,” Mr. Lee said.
However, Ms. Chia Siew Chuin, Head of Residential Research at JLL Singapore, noted that the increased grants for first-time singles might also direct some demand away from the private residential market to the HDB resale market.
Potential Unintended Consequences
Associate Professor Yu Shi Ming from the NUS Business School warned that the increase in grants could inadvertently lead to higher resale prices. “While this is great for young families wanting to buy their first home, it could result in higher asking prices from sellers, especially as resale HDB prices have already reached new peaks,” he said.
He cautioned that the government’s effort to support young families could lead to continued price growth in the resale market, despite various cooling measures introduced in recent years.
Conclusion
While Budget 2023 introduces much-needed support for first-time buyers, the increased housing grants may also shift demand towards the resale market, potentially driving up prices. With the government aiming to ease the homeownership burden for young families, the future of the housing market will depend on how supply, demand, and affordability balance out in the coming months.
