In 2020 and 2021, more than 50,000 Housing and Development Board (HDB) flats will reach their Minimum Occupation Period (MOP). Most of these flats became ready for occupation in 2015 and 2016, but could not be sold before the owners had lived in them for at least five years.
As this bumper crop of flats reach their MOP, a significant number will be put up for sale on the HDB resale market as owners look to upgrade to larger HDB resale flats or hunt for affordable private property. This trend has already begun in 2020, as half of the above-mentioned flats reached MOP this year.
You can read more about the ‘MOP market’ in the PropertyGuru Property Market Outlook 2021 report.
As the supply of these new resale flats is likely to rise even further in 2021, what impact could they have on resale flat prices?
First of All, What’s the Big Deal About MOP Flats?
Many sellers rush to sell their 5-year-old flats as soon as their MOPs have expired. There is the perception that selling an HDB flat as soon as the MOP expires will garner the highest resale prices as the flat is still new, in good condition and has the longest possible remaining lease.
Related article: HDB Flat Reaching MOP Soon? What Are Your Options?
In addition, there will be a number of buyers who wish to upgrade their homes but have had to wait for the MOP to be over in order to sell their flats. This includes those whose families have expanded and thus need a bigger flat. There will also be households who wish to live in a more central location but could not afford to do so before. Finally, there are households who aspire to live in private property and may wish to upgrade when they find an affordable condo unit that is within their budget.
5-year-old flats also tend to enjoy healthy demand on the resale market, as buyers are attracted to newer flats with a high number of years left on their 99-year leases. Not only does this ensure that they do not outlive the lease, it also makes the flat more valuable as a potential inheritance for their children. MOP flats also tend to be newer and in better condition, which is ideal for those who wish to save on renovations.
Shopping for a new home? Browse HDB resale flats on PropertyGuru.
Should you sell your HDB MOP flat in 2021?
If you’re the flat owner of a newly or soon-to-be MOP flat, then you may be wondering whether 2021 will be a good year to sell your property and turn a profit. After all, many others will be ‘MOP-ing’ with you and having similar thoughts. Following the laws of demand and supply, assuming demand remains the same, the large supply of new resale flats entering the market should push prices down. In that case, should you hold on to your property for slightly longer?
Nobody can say for sure how the market will react in 2021, but if 2020 is any indication, you do not have much to worry about.
In 2020, much to analysts’ surprise, the demand for residential property remained robust. In particular, the pandemic seems to have boosted demand for HDB resale property due to factors such as delays in BTO launches, a growing tendency to telecommute and an increased demand for space caused by longer hours spent at home.
In the coming year, these trends are likely to continue, with a strong supply of MOP flats boosting both the supply of available flats and demand from sellers looking for a new home.
How Did MOP Flats Affect the Market in 2020?
2020 is a good year to look back on and spot trends for 2021 because about half of the five- and six-year old flats reached their MOP. So, let’s take a closer look at how the influx of MOP flats affected the market this year for clues on how the market may react next year.
It appears that the high number of five-year-old HDB flats that entered the resale market in 2020 has actually helped to stimulate demand.
HDB resale prices rose by 1.5% quarter-on-quarter in the third quarter of 2020, the highest growth rate since the fourth quarter of 2012.
The number of HDB resale transactions also hit a 10-year high as the strong supply of resale flats was met with healthy demand, rebounding spectacularly after falling to their lowest levels since 2007 in the previous quarter.
Strong home resale prices can be attributed in part to the high volume of MOP flats being put up for sale, as well as to pent-up demand due to the lower BTO supply in the first half of the year. HDB flat sellers typically buy a new home at the same time as they sell their flats on the resale market, thereby stimulating demand at the same time as they increase supply.
A higher number of HDB transactions also has knock-on effects for the private property market as a number of sellers upgrade to private property.
In the third quarter of 2020, private residential prices increased by 0.8%, driven by increased purchases after the circuit breaker. Prices in general remained strong in spite of the pandemic and the economic recession.
Will This “MOP Effect” Continue into 2021?
As mentioned, in 2021, over 20,000 HDB flats are expected to enter the resale market when their MOPs expire.
After a temporary dent in new home sale activity that the new restrictions on reissuance of OTPs cause in Q4 2020, the robust home prices of 2020 are expected to continue in 2021.
As the COVID-19 pandemic drags on, delays in construction of BTO flats continue to push buyers to the resale market in order to avoid uncertainty.
In addition, buyers may turn to resale HDB flats instead of private property in order to exercise financial prudence in the face of economic instability.
In fact, as households spent an unprecedented amount of time at home this year, the pandemic might actually have generated greater demand for more spacious residences, thereby raising demand for HDB resale flats, which are a more affordable option for those who wish to obtain as large a space as they can afford.
Working from home, which in a short space of time has become much more widespread, might also persuade a number of singles to move out of their parents’ homes by purchasing a flat on the HDB resale market.
Finally, the HDB’s recent BTO exercises have been heavily oversubscribed, which may divert unsuccessful applicants to the resale market.
The private property market is also likely to benefit from the high demand for housing in the coming year. With many more aspirational upgraders looking for private homes after selling their HDB flats on the resale market, there is likely to be strong demand for affordable private properties in the $1,000,000 to $1,500,000 price range in 2021.
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