Tuesday, July 1, 2008

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Mass Market Property Price to hold firm ?

There is a general consensus among property analysts that the mass market property price is the most likely to hold firm as over-priced prime properties cause cash-rich enbloc sellers to downgrade to the mass market and providing a good support for its price level.

We may however see a reverse exodus as prices of prime properties fall.

Here's an excerpt from Business Times:
Central, prime condo take-up rates outpace other areas -Business Times - 01 Jul 08
SOFTENING condo and private apartment prices in the first six months of this year in the prime and central districts - the latter of which covers the financial district, Harbourfront area and Sentosa Cove - have been accompanied by a push in demand in these locations...The prime and central districts achieved relatively higher take-up rates of 87 per cent and 250 per cent respectively during H1 2008 compared with take-up rates of 67 per cent for east coast and 66 per cent for mass-market during the same period.

As prices of prime properties fall, and that of the mass market rise; buyers will start moving back to the prime location, leaving the mass market property price less well-supported. Indeed, according to the BT report above, the reverse exodus is beginning to take place.

The report also shows that the HDB upgraders’ share of the mass market has increased to 39% of total non-landed private homes bought (in both primary and secondary markets) during the first five months of this year in all locations.

If this is indication of HDB upgraders eventually becoming the dominant buyers of mass condos (which is traditionally the case), then I'd see more downside than upside in the mass market segment. Reason: HDB upgraders do not, in general, have the sort of financial muscles to continue to support the rise in the price of the mass market property. The slow take-up in the mass market is an indicator of such intrinsic weakness in this market segment.

I'm therefore skeptical, with this market interactions of prime properties and mass market properties (and the HDB Resales market), that the property price for the mass market will indeed hold firm. After all, property is about "location, location, location".

HDB upgraders who are betting on selling their HDBs at high prices in the resales market to pay for their upgrading may find themselves trapped later.

May also want to read:
History of Singapore Property 1960 to 2008
Buy or Not Buy: How to decide amid mixed market signals
When to Buy, When Not to by
Property Price Index Graph Plotter & Online Property Valuation
Your Property Investment Determines Your Financial Success in Your Life


Anonymous said...

Thought I'd highlight that its not that HDB owners are now buying more private condos. HDB owners are actually buying FEWER condos. However, the plunge in property purchases from people with private addresses has been EVEN MORE PRECIPITOUS.

"JLL's study also showed that amidst the overall quieter market the number of non-landed private homes bought by those living in HDB flats as well as those with private addresses fell in the first five months of this year."


My interpretation:
Speculative or investment purchases formed a significant proportion of private property sales last year. Investors were more likely 'rich' private addressees buying investment units. When sentiment evaporated this year, purchases from investors plunged (private>HDB).

That just leaves the small core of 'true' HDB upgraders in the market. Hence, the increase in their share.

This is symptomatic of :
1. Lack of confidence by investors that money can still be made if they buy at current prices.

2. Lots of speculative froth contributing to 'artificial' demand rather than true owner-occupiers.

Smart Property Buyer said...

Dear Anonymous,
Commendable insight and foresight of the property market!

Going forward, what's your take on the property price movement for each of the market segments: High End Private Property, Mass Market Property (Condos), HDB resales ...?

Thank you for your comment.

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