VERS and HIP II could shake stagnant outlook of HDB market

Owners can hold onto the future value of their flats, an analyst said.

The introduction of two new public housing schemes, the Voluntary Early Redevelopment Scheme (VERS) and the Home Improvement Program (HIP) II, is expected to improve sentiment in the HDB market as owners could look forward to the certainty of the future value of their flats, Jefferies Singapore said.

VERS aims to address concerns of HDB owners related to the decay of 99-year leasehold. Under the scheme, residents in a precinct would have to vote to allow authorities to take back the flats. Those who do so will receive compensation, which can be used to pay for another flat.

The scheme is intended to be implemented in about 20 years' time and will be applicable to housing estates that are about 70 years old. The scheme will be applicable for all HDB flats.

Meanwhile, HIP II is an expansion of the programme to fix common maintenance problems at ageing HDB flats from those built in the years up to 1986 to all HDB flats built up to 1997. This is expected to benefit 230,000 HDB owners. The upgrading works are up to 95% subsidized by the government.

According to Jefferies Singapore analyst Krishna Guha, the HDB resale and private property price may start converging again. “Notwithstanding the fact that the new schemes will not start until a decade later and the specifics are still being worked out, they may start impacting buying sentiment and preferences,” he said.

These schemes come after a prior announcement suggesting that leasehold properties will completely lose their value at the end of their lease tenor. On the year, the HDB resale index is down 1% whilst the private residential price index is up 9%.

“With the announcement of the new schemes, HDB owners now have some certainty about future asset value,” Guha added. “This may start putting a bid back in the HDB resale market and help converge HDB resale and private property prices.”

Meanwhile, the announced schemes could further dampen sentiment in the private property market. “As demand shifts back to the public market, there is likely to be less upgrader demand,” Guha said. The investment demand for shoeboxes could also possibly be dented.

“Whilst VERS and en bloc are not exactly comparable, the distinction between a 99-year HDB and 99-year private property is getting a lot less blurred, in our view,” the analyst added. “Young families that are potential first-time buyers of private properties may start evaluating HDB properties expecting similar redevelopment schemes decades later.”

Jefferies Singapore is still expecting lower private home volumes and prices. It set its full-year sales forecast to 8,500-9,000 units (down from 11,000-12,000) whilst the price forecast is down to 4% to HoH for the second half of the year.