Build-to-Order put on hold - to just build

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#1
Business Times - 28 May 2011

Build-to-Order put on hold - to just build


HDB goes into overdrive and will build in anticipation of demand; record new supply coming up, but industry players warn about dangers of overbuilding

By UMA SHANKARI

WITH a new minister calling the shots, the Housing & Development Board (HDB) rolled up its sleeves yesterday and announced a huge new supply of flats as well as its intention to build even before demand is determined.

HDB said that it would roll out 4,000 new flats in six projects - the largest supply of new flats ever released in a single launch - and also ramped up the supply for the whole of 2011 from 22,000 units to 25,000 units.

HDB will also start to build flats in anticipation of demand - marking a significant shift away from its current Build-to-Order (BTO) system, where a project is built only after confirmed orders are garnered for 70 per cent of the flats.

National Development Minister Khaw Boon Wan announced the policy changes in his Housing Matters blog yesterday.

'Given robust demand, I told them (HDB) to proceed to build, knowing that the orders will definitely come,' said Mr Khaw. 'In other words, build ahead of demand, during this period of demand backlog. We can return to normal BTO approach after we have stabilised the situation.'

Currently, a tender to build HDB flats is called only after 70 per cent of orders have been confirmed; hence 'build to order'. With the change, HDB will call a tender as soon as architectural drawings and tender documents are ready.

HDB will also bring forward the projects planned for the first quarter of 2012 by a couple of months, which will allow it to raise the number of new units from 22,000 to 25,000 this year.

The new pace of building will be sustained next year, Mr Khaw said: 'As we intend to ease the $8,000 income ceiling on HDB flats, we can expect additional demand and we have to prepare for that.'

He also hopes to allow more young couples to buy their homes directly from HDB. Currently, 70 per cent of new couples get their first homes through HDB's BTO system. The rest get theirs in the resale market. 'This is not bad, but I think there is scope to do more,' said Mr Khaw. 'I think we should strive to have the vast majority of new couples start off their first set of homes in HDB, preferably via the BTO route.'

He added: 'One priority is to help young couples own their own homes as soon as possible, so that they can start their family and have babies. This is a national priority - promoting marriages and births - and the Ministry of National Development must facilitate it to its best ability.'

The announcements drew mixed reactions from analysts and industry players. In particular, there are concerns that HDB's move to build ahead of orders could lead to oversupply problems down the road.

'The question that some people will ask is: are they overbuilding?' said ERA Realty's key executive officer Eugene Lim. 'There are some concerns in the market. But I think HDB will definitely watch the take-up very closely.'

Another industry player noted the plans to roll out around 25,000 new flats in both 2011 and 2012 assumes that there is a large backlog of demand from first-timer households.

'Currently, there are about 15,000 first marriages among Singaporeans a year. But HDB is rolling out 25,000 flats a year. At least 95 per cent of the flat supply is supposed to be set aside for first-time buyers. So if there isn't enough demand from them, there is going to be a problem,' the industry player said.

But the ramped-up supply will meet demand from first-time buyers who are asking for more BTO flats in a greater variety of areas, analysts said.

PropNex spokesman Adam Tan said that some first-timers are still put off from buying resale flats because of the high cash-over-valuation (COV) amounts demanded by sellers.

'COV prices are bottoming out at around $21,000, and many first-time buyers will still be priced out of the resale market for this reason. Hence, they will definitely find great relief in this bumper crop of BTO flats,' Mr Tan said.

International Property Advisor chief executive Ku Swee Yong said that as more new flats are built, a proportion of them could be allocated as replacement flats for selective en-bloc redevelopment schemes (Sers) so that renewal programmes can also be sped up.

The 4,000 new flats rolled out yesterday are in six different projects spread out over four estates: Punggol, Pasir Ris, Tampines and Woodlands. This gives first-time buyers 'plenty of choices in relatively popular neighbourhoods', HDB said.

Including the latest batch of flats, HDB will be releasing around 12,000 new BTO flats in the first five months of 2011.

The BTO supply will also be supplemented by more upmarket public housing units offered under the Design, Build and Sell Scheme (DBSS) and the executive condominium (EC) housing scheme. For 2011, land sites for 4,000 DBSS flats and 4,000 EC units are scheduled for sale.

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May 28, 2011
More HDB flats - and at a faster rate

Minister Khaw promises measures to help clear demand backlog
By Esther Teo, Property Reporter

NEW National Development Minister Khaw Boon Wan has wasted no time in addressing the backlog in demand for new Housing Board (HDB) flats.

He promised yesterday to build even more flats this year and next year, and get them ready faster.

A record 25,000 new flats will be built this year, up from earlier plans for 22,000, which was already a record.

He also committed to keeping up the new pace of building next year. This could mean launching an unprecedented 50,000 new HDB flats in just two years.

Buyers can also expect their keys sooner. Flats will be built 'ahead of order', a key shift from the build-to-order (BTO) system where the construction tender is called only after there are buyers for at least 70 per cent of the units launched.

Now, the HDB will call for a tender as soon as architectural drawings and tender documents are ready.

'Given robust demand, I told (HDB) to proceed to build, knowing that the orders will definitely come. In other words, build ahead of demand, during this period of demand backlog,' he wrote in his blog.

The HDB said it was in the process of determining how much waiting time this will save for flat buyers. Experts estimate that the change could see buyers getting their flats one to three months sooner.

It means the HDB will go ahead and build new flats regardless of the response. Previously, if the take-up was less than 70 per cent, construction would be delayed until that threshold was met.

The move builds on an earlier move to cut the waiting time for new flats - from the point of booking a flat to collecting the keys - to about 21/2 years.

Mr Khaw made clear though that building ahead of orders would only be a temporary measure to clear the demand backlog; the HDB would go back to the BTO approach once the situation stabilised.

For this year, 22,000 flats will be launched by September, while 3,000 flats originally scheduled for early next year will be brought forward.

Yesterday, HDB launched close to 4,000 new flats in six BTO projects - the largest batch in a single launch.

Mr Khaw said the bigger supply would help young couples own their homes as soon as possible so they could start a family, which is a national priority.

There are 15,000 first marriages each year among Singaporeans, a possible gauge of demand for new flats.

'As we intend to ease the $8,000 income ceiling on HDB flats, we can expect additional demand and we have to prepare for that,' Mr Khaw said.

He is keen to see more new couples get their first homes through BTO flats. About 70 per cent currently do so while the rest buy on the resale market, he said.

'This is not bad, but I think there is scope to do more. I think we should strive to have the vast majority of new couples start off their first set of homes in HDB, preferably via the BTO route.'

But even as the pace of building is ramped up, he emphasised the need to ensure that the quality of finish, workmanship and worksite safety stayed strong.

Responding to the minister's action to build more and build faster, experts said Mr Khaw was keeping his word to help young couples buy their first home.

But they said the change also underscored the size of the demand backlog.

ERA Realty key executive Eugene Lim warned, however, that even as the building pace is quickened, the HDB would have to be careful not to overbuild and end up with large stocks of unsold flats as had happened in the past.

'There are 10,000 more homes than... marriages yearly. Since 95 per cent of new flats must be sold to first-timers, the HDB will have to watch this closely to avoid having unsold homes.'

PropNex chief executive Mohamed Ismail welcomed the changes, as most recent BTO launches had been oversubscribed and many interested buyers were left on the waiting list.

Engineer Lee Wen Pin, 28, who is getting married in June next year, said: 'I think the change that sees the waiting time shortened is the most beneficial.

'A couple usually get married about two years after the proposal so any time saved that allows them to get a home sooner is always welcome.'

esthert@sph.com.sg


My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
They are finally doing something right. I could never understand why they did not want to do away with the BTO system when there is clearly a lack in supply of flats.

On a seperate note, I can never trust ERA's opinions and views on the property market. There is a conflict in interest. The higher the property price, the more commision they will get. Why in the world should I be listening to their "expert" opinions.
www.joetojones.com - Helping the average Joe find the winning companies to invest in.
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#3
The same reason why we should listen to our stock brokers and the management of our investee companies. Because they're closer to the market, transaction flow and important decision makers, what they say is sometimes valuable. To say 'never trust' is a very strong statement.
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#4
(30-05-2011, 05:24 AM)natnavi Wrote: On a seperate note, I can never trust ERA's opinions and views on the property market. There is a conflict in interest. The higher the property price, the more commision they will get. Why in the world should I be listening to their "expert" opinions.

I agree with natnavi. Recently, Kim Eng reported on Raffles Education but look at the stock now.

Another is SGX. A few Ang mo brokers recommended buy but actually they are selling while you buy. Better trust yourself than brokers.
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