The Government hopes to ease home prices in a 'gradual manner' even as it guards against policy changes that lead to major price corrections, National Development Minister Khaw Boon Wan said last week.
After a year as housing minister, Mr Khaw believes recent policy moves to ease the public housing crunch are working but 'we are not out of the woods yet', he said in an exclusive interview with The Sunday Times.
In the year since housing emerged as one of the hottest issues in the general election in May last year, queues for new HDB flats have shortened and prices of new flats stabilised.
New HDB figures show an 85 per cent success rate for first-time home buyers in the November 2011 launch of new flats - up from 45 per cent in May last year.
Some 5,800 couples became eligible to buy new flats after the monthly income ceiling - unchanged for 17 years - was raised from $8,000 to $10,000 last August.
These measures have helped ease worries among young couples buying their first home.
To prevent demand running ahead of supply again, the HDB is thinking of holding an inventory of unsold flats, Mr Khaw revealed. 'Some stock of unsold flats is a good thing to have. It will cost us money but it's a cost that we may need to bear,' he said. A decision will be made when the backlog is cleared.
Panic among home buyers in recent years - when property prices hit historic highs - was 'totally understandable'. But he gave this assurance: 'Having gone through many (property) cycles, I can only advise and remind that things don't go in a straight line.'
There is now more certainty of supply, with HDB's launch of a record 50,000 build-to-order (BTO) flats in two years.
Mr Khaw said: 'Over time, hopefully we can ease (prices) down. This depends on interest rates and the global economy.'
The Government's job is to manage this transition gradually and it must not cause major corrections in the market as this would be 'very painful' for home owners.
Mr Khaw also points to 'signs of stabilisation' in home prices. The pace of growth in resale flat prices has moderated - it inched up 0.6 per cent in the first quarter of this year, the slowest since 2009. Cash premiums paid for resale flats, known as cash over valuation (COV), have started to ease.
Even private home prices in the central region are moderating, with the exception of mass market 'shoebox' units of 500 sq ft or less. That is a sector Mr Khaw is watching closely.
'Overall, we are not yet out of the woods. But I am beginning to see the light at the end of the tunnel,' he said.
Mr Nicholas Mak, SLP International research head, noted that based on an analysis of BTO flat prices in five HDB estates, prices of new flats in the majority of new projects have risen marginally by 1 per cent or 2 per cent since the May 2011 General Election.
In contrast, the price movement of BTO flats corresponded more closely with the movement of resale HDB flat prices, which rose more than 10 per cent in the year before the general election.
As for COVs, ERA Realty's Mr Eugene Lim said ERA's transactions showed average COVs eased from a high of $38,000 in August last year to about $27,000 last month.
PropNex chief executive Mohamed Ismail said the risk of oversupply in the near future is still low as pent-up demand means new units are being absorbed.
'More broadly, the stabilisation of the property market will take at least a couple of years. It's not going to be something you can achieve overnight,' he said.